Everyone loves to save money, and that is especially true when it comes to a homeowner’s most significant expense: their mortgage. There are several reasons why you may be considering refinancing your home, such as lowering your monthly bill or to obtain a better interest rate. Whatever may be enticing you to refinance, let’s take a look into when you should refinance your home.
What is refinancing?
Refinancing is the process of getting a new mortgage on your home for one of several reasons such as:
- Reducing the monthly payments.
- Lowering the current interest rate.
- Taking cash out of your home for large purchases such as a remodel.
- Or to change mortgage companies.
When most people refinance, they do so when they have equity in their homes. Equity is the difference between the amount owed to the mortgage company against the total worth of the property.
When should I refinance my home?
Once you have started to consider refinancing your home, and it is not a small decision to make, take a hard look at why you want to refinance.
For example, if you are looking to refinance your home to go on a spending spree, be wise and don’t refinance your loan. On the other hand, if you are trying to lower your monthly payments so you can put more money into a retirement account that may be a smart choice.
You may consider refinancing your home if it needs an upgrade, such as a kitchen remodel that will increase your home’s overall value. However, we only suggest refinancing your mortgage for purposes such as this if you plan to live in your home for at least five more years and are not planning to sell any time soon. It takes time for a refinanced loan to begin saving you money because there are fees associated with refinancing, such as appraisals of your property and more. If you plan to sell within the next five years, it is not worth the process.
As we have said, refinancing is not a small decision but should be considered carefully before taking action. However, if you have noticed that interest rates are at least a full percent lower than what you have currently, you should consider refinancing for the overall savings in the long term. If you are a homeowner who is already deep into their mortgage with ten years or more already paid into it carefully reflect before you refinance because of interest costs. The longer you have paid on a mortgage, the more principal you have paid in your home’s value and it may not be wise to jump into a new mortgage.
Finally, your credit is also an essential factor to think about when considering refinancing. Not only to see if you qualify for a new loan but also your history. If your credit was lacking when you initially obtained your mortgage, and you have made several steps to improve the health of your score check into new interest rates. If you qualify for a better interest rate, it will help you save more per month and save more cash in the long run.
Will I qualify for a refinance?
Even if you have weighed all your reasons for refinancing your home, you still need to be able to qualify. When you refinance, it will require a new underwriting process, and that will take time. To begin with, most lenders want to see a 20% equity in your mortgage, along with what your current income is and the health of your credit score. If you are confident you can meet the qualifications and plan to stay in your home for several more years, then refinancing may be an excellent option for you. We hope this helps you in deciding on what is the best option for you and your family.
Here at Rob Roland Realty, we are very familiar with the aspects of refinancing, and we are here to help with all of your home buying and selling needs. If you need help with anything related, do not hesitate to contact us today!