Refinancing a home loan (mortgage) means paying off the original loan then replacing it with a new one. There are a few reasons why homeowners may need to refinance their home loans. Some of those reasons may include;
· To get a lower interest rate.
· To change from a fixed-rate mortgage to an adjustable-rate mortgage or vice versa.
· To tap into home equity to finance a more significant project such as home renovations.
· To consolidate debt.
The process of refinancing your home loan involves similar steps to those you’d encounter when applying for your first mortgage. According to experts, first, you will need to take time and research all suitable loan options. Secondly, collect proper financial documents then submit your mortgage refinancing application for approval.
However, refinancing your mortgage can cost between 3% and 7% of the principal loan amount. This will require an appraisal and title search and application fees; so, you need to weigh up other options before settling on refinancing.
Types of Refinancing Programs
Here are the various types of refinancing programs available;
Home Equity Loans and HELOC
These types of refinancing programs utilize the accumulated equity in your home to give you a second loan. The repayment period of the second loan may last between 5 to 15 years.
With this program, you refinance your home loan to acquire cashback for equity up to 80% loan-to-value ratio (LTV). Cash-out refinancing, you get a higher amount of loan while removing the closing costs. Financial institutions commonly use LTV. LTV expresses the rate of a loan to the value of an asset bought.
This applies to government-backed home loans such as VA and USDA and offers lower interest rates and monthly payments. Streamline means that the refinancing program is faster and requires less paperwork.
Rate and Term Refinance
This is an older home loan refinancing program that lowers your payments by minimizing interest rates and rearranging the terms of the loan.
Signs You Should Refinance Your Mortgage
You Want to Lower Your Monthly Payments
Refinancing your mortgage can assist you in lowering your monthly payments. This can be done by reducing the interest rates and extending the loan repayment period over the longer term. Making your monthly payments on time will also improve your credit score. Nonetheless, if you’re struggling with this, don’t hesitate to check out boost credit.
Getting a new mortgage loan and repaying it over an extended period, for example, 30 years, will considerably lower your monthly mortgage payment.
You Are Close to Retirement
If you happen to be approaching retirement, this means that your monthly income will significantly reduce. Therefore, refinancing your mortgage to a lower rate and monthly payments enable you to repay the mortgage comfortably.
If You Have an Adjustable Rate Mortgage
An adjustable-rate mortgage has a low interest rate for a fixed period, and afterward, the rate increases yearly. To save some money, you can refinance your home loan with a fixed-rate mortgage.
You Want to Remove Private Mortgage Insurance (PMI)
One way to get rid of PMI is by refinancing your mortgage to a conventional loan. Moreover, homeowners whose property is appreciating or who have already paid off the principal have no reason to continue paying the mortgage insurance.
Categories: Real Estate