Refinancing your mortgage may be intimidating, but it can often place you into a better financial position. The trick is to know how and when to apply for a refinance.
In general, there are five situations where a refinance might be a good idea.
When your interest rate is higher than the current average.
High interest rates mean high mortgage payments. They also mean paying a lot more over the life of your loan.
Interest rates have been high for awhile now, but cuts happen. In addition, your initial interest rate might have been higher than average thanks to the state of your credit, your home appraisal, or a dozen other factors.
Of course, a lower interest rate isn’t guaranteed. The deal must still make sense to the lender. But if you see average interest rates dropping or your credit improves significantly, it may be worth it to take the plunge.
See also: Good Credit Score: Your Ticket to Better Financial Opportunities
When you want to tap into your home’s equity.
A cash-out refinance allows you tap into your home equity. This type of refinance might be the only option for homeowners who wish to make significant repairs or renovations to their homes.
This type of refinancing can be a great idea as it can immediately increase the value of your home while preserving your ability to live happily inside of it.
See also: The Pros and Cons of Purchasing an Old House vs. a New House in Florida
When your current payments are too high.
Lower interest rates aren’t the only way to lower payments. For example, you can transform a 15-year mortgage into a 30-year mortgage to lower the payments by increasing the term of the loan.
You could also use a cash-in refinance, which allows you to make a substantial payment to reduce your loan balance. Once you’ve done that, the lower loan-to-value ratio may allow you to lower your payments as well.
See also: How to Save for a Down Payment
When you’ve started with an ARM.
Adjustable rate mortgages are risky, and can be stressful if you ultimately can’t absorb the payment fluctuations.
As rates increase your monthly payment increases too. A refinance can help you smooth your payment schedule into something you can predict and handle.
When you want to add or remove a borrower.
Marriage is the most common reason why someone might want to add another party to a mortgage, and divorce is the most common reason why someone might want to remove them.
Adding an heir to the mortgage may also be a step you take for estate planning purposes.
There is no way to do either one without refinancing the mortgage. You can generally do this even if your credit score has dropped, as there are refinancing options available to those with lower credit scores.
Get Help With Your Refinance Today
If you believe it’s time for you to refinance, you’ll need expert guidance to choose the right loan for your situation, as well as to secure the best rate and terms for your new home loan.
Contact Alex Doce to schedule your one-on-one consultation today.
