You might save thousands of dollars by refinancing. However, taking precautions is crucial to avoid the hazards and drawbacks of mortgage refinancing.
Mortgage experts predict that rates will continue to rise from the record low reached earlier this year; however, because they are still low in comparison, you could feel pressure to refinance your mortgage now. Although low-interest rates are alluring, refinancing is a significant decision that as to be carefully considered.
Refinancing is frequently done to cut monthly payments, slash interest rates, or access the equity in a home. Some people refinance in order to pay off their debts more quickly, do away with mortgage insurance, or change from an adjustable-rate to a fixed-rate loan.
Think about why you want to refinance your mortgage before you start.
Making Your Monthly Payment Smaller
To do this, you can either refinance into a loan with a lower interest rate or increase the loan’s term, for example, from 15 to 30 years. The disadvantage of extending the term is that you will eventually pay more in interest over the life of the loan.
You can borrow more money than your existing mortgage allows with a cash-out refinance and put the excess funds to use for something else. It might be possible to refinance with cash out and get a cheaper interest rate at the same time.
Paying Off Your Debt More Quickly
You will pay much less interest overall if you refinance your mortgage from 30 to 15 years. Although you may save a sizable sum of money by doing this, your monthly payment will increase, so you must be sure you can afford a bigger mortgage payment.
Finding a Fixed-Rate Loan for Stability
If you anticipate an increase in interest rates, refinancing from an adjustable-rate mortgage to a fixed-rate loan might offer financial security and the assurance that comes with consistent payments. If you want to live in your home for a long time, a fixed-rate loan can be a wise choice.
What You Should Do if You Choose to Refinance
Verify your eligibility as a candidate. The requirement for a new loan will be lowered if there is at least 20 percent equity in the home.
Compare interest rates and costs when evaluating lenders. Frequently, loans with low initial interest rates can have high fees. Ask about origination costs, points, credit, and processing fees before application. Think about all the expenses a mortgage refinance will entail.
Determine your break-even point. Use a mortgage calculator to determine your break-even or the point at which your total monthly savings will outweigh your refinancing costs.
If you don’t intend to live in your house for a long time, refinancing might not be worthwhile. Make sure your break-even analysis takes into account all closing costs.
Carefully consider adjustable rates. Mortgages with adjustable rates might be dangerous. Despite how alluring a low starting rate might be, rates on these loans can regularly change, which might eventually make your mortgage impossible to pay.
Examine the loan documentation thoroughly. Make sure you thoroughly investigate and comprehend every aspect of your new loan deal, especially the small print.
The best defense against the pitfalls and snares that could result from refinancing your mortgage is a detailed assessment of your goals, objectives, and current financial status.
If you’re looking for reliable mortgage refinancing in Oklahoma or Florida, you can trust Cross Timbers Mortgage.
We offer mortgage loan origination, helping customers find the right mortgage for their specific financial goals. Call now and find your way home with us.