Before you opt for refinancing, here are 6 critical things to know
Refinancing helps you achieve your financial goals as you pay up the old ones and replace them with new ones. Homeowners use these loans to lower their interest rates, instantly pay off mortgages or even convert home equity into cash. So how can one determine whether refinancing is the best course of action and is a valid issue?
Having a good knowledge of how the system works gives you a good answer. So, if you are refinancing, here are six things to know and understand before you make a call to your lender.
- It takes time to refinance.
Before you call your lender, understand that refinancing is a home purchase process that takes roughly 30 to 45 days to complete.
You’ll need to qualify the same as you were qualified with your initial home. Lenders will take a good look at your financial health, like credit history, income, and so forth. Thus you are expected to show your financial documents like pay stubs and bank statements.
The process also involves appraisal of your home; thus, it is critical to have it in good shape; it will also help you to complete the paperwork and transactions at a quicker pace.
- There is no time to waste.
The interest rates have steadily declined for the past ten years, and as per experts, this trend will continue even in the future. Therefore, low monthly payments with a low-interest rate are a healthy sign. However, if the new loan goes up, then all the savings you have done this far will go up in smoke.
It is advisable to compare your original mortgage’s interest with the new one before refinancing. This will help you gauge how much money you are left with in the future.
- Refinancing has various benefits.
There are various reasons that one should go for if they are interested in refinancing, new loan rates are not the only criteria. However, new loan rates are bound to hit your pockets. Therefore, opting for longer payment terms is advisable if you are looking for a lower monthly rate.
Chances of you ending up paying higher mortgage rates are high if you consider the repayment process over as quickly as possible. You will end up hurting your pockets. Always check for other options and settle for one which fulfills all your needs.
There may be other reasons, like cashing out your equity, changing your loan type, or removing your name from your mortgage (entering into a divorce case)
- You are free to leave your current lender.
The refinancing process helps you repay your existing mortgage. Thus you don’t need to pay your original lender since this is a new loan. As a result, you can shop around and look for any terms and conditions that may suit your needs.
Although there won’t be a switch, having lower fees, better rates, or other perks can be advantageous when the lender makes an offer.
- You may make more investments in your current home.
Some wish to refinance and reinvest back into the home, giving the home renovations and improvements. Thus not only are living conditions improved, but they also add extra value to your home if you wish to sell the home in the future.
And then there are those homeowners who even use the savings from refinancing to purchase an investment property, taking advantage of low mortgage rates to increase their portfolio of homes.
- Make an informed choice since it is all up to you.
Ultimately, everything boils down to your need, as buying a home is a personal decision. If you decide to opt for refinancing, consider all the options made available, and before you sign the deed, ensure you have explored all the possibilities and know what you are getting into. As always, read the fine print.