Refinancing lets homeowners take advantage of low mortgage rates by tapping into their home equity and lowering their monthly payments. Although a low-interest rate may tempt you to refinance, it is not always the best option for all loans.
The best timing to refinance a mortgage varies by person. Several criteria determine whether this is the best course of action for you, including your financial objectives and the length of time you expect to stay in your existing house.
Here are some common indicators you might consider for successfully refinancing your mortgage.
You Want to Pay Off Your Loan Earlier
Short-term loans have higher payment dues but lower interest rates, saving you money down the line. Refinancing your loan into a shorter term might be a good choice if you can comfortably make larger monthly payments.
To free yourself from financial burdens, paying off your loans sooner can help you get there. This can also improve your credit rating and get approved loans faster if you apply for another loan.
You Wish to Have a Lower Interest Rate
Homeowners frequently refinance to lower the interest rate on their loans. Refinancing can save them a significant amount of money over the life of the loan.
Furthermore, refinancing may be beneficial if your home loan rates are high and you believe you are overpaying your mortgage.
You Want to Modify Your Loan Type
Adjustable-rate mortgages (ARMs) allow you to start your loans at lower interest rates. However, their cost can skyrocket after a while. This is when refinancing can help you switch from an ARM to a fixed-rate mortgage and lock in the low-interest rates.
You Want to Tackle Your Home Equity
A cash-out refinance may be a good financial move if your new rate is lower than your current rate. Keep in mind, though, that improving or preserving the value of your property with modifications or repairs is the most excellent method to use your home equity. You transform risky obligations into loans your house secures when using equity to pay off other debts.
As a result, cash-out refinance enables you to access the equity in your house to pay off high-interest debt or make significant home improvements.
You Want to Eliminate Private Mortgage Insurance
Private mortgage insurance (PMI) protects the lender if you fail to make timely payments. This occurs when you pay a 20 percent down payment on a home from conventional loans.
If the value of your home has significantly increased since you purchased it and your loan-to-value ratio is less than 80 percent, refinancing may help you eliminate PMI. In that case, refinancing to get rid of PMI could save you hundreds or thousands of dollars per year.
If refinancing lowers your mortgage payment, shortens the duration of your loan, or allows you to develop equity faster, it can be an excellent financial option. It can also be a valuable instrument for debt reduction when you utilize it correctly. However, keep in mind that refinancing charges between 3 and 6 percent of the loan’s principal. Savings from a lower interest rate or a shorter term require years to recoup that expense. As a result, if you only plan to stay in your house for a few years, the cost of refinancing may outweigh any possible savings.
Regardless of whether you are confident that you are ready to refinance your mortgage, it never hurts to obtain further information. Allow a Cross Timbers Mortgage loan counselor to walk you through the best mortgage refinancing in Oklahoma or Florida for your unique situation. We strive to prepare you better to refinance your mortgage. Contact us today!