You might have heard about refinancing your mortgage as a way to save more money, increase your cash flow, or to reduce your loan repayment time but what does all this really mean? Do you really need to refinance?
Refinancing refers to the process of getting a new mortgage to get new interest and loan rates. A lot of people choose to refinance when they have home equity – the difference between the owed mortgage and the price of the home.
Many homeowners refinance to lower their monthly payments. You can do this if the rate is considerably lower or if the loan term restructure is practical. Usually, as people work and succeed in their careers they earn more money, they pay their bills on time, consequently improving their credit score. This allows them access to loans with lower rates.
You can also refinance to consolidate debt and to make a major purchase. You can withdraw part of your home equity to pay off high interest debts. Or, you can opt for a cash-out refinance if your purchase requires a large amount of money.
While you can lower your rates, you can also incur penalties by paying down your current mortgage with home equity credit. For some agreements, companies may charge a fee which can result in thousands of dollars in expenses. If you wish to proceed with the refinancing then make sure your agreement covers the penalty and that the arrangement is still worth it. There’s no point in changing your terms if you have to pay out thousands of dollars to do so.
Also, refinancing may only provide you limited product options. Even if you try to shop for options and new lenders, the choices may not be as many as you think.
What to Do
It is important to understand whether you really need to refinance or not. Here are some things you can do to ensure your decision is right:
- Set your goals
- Understand your credit score
- Know the current value of your home
- Look for the best mortgage rate
- Compute your overall costs
- Do the paperwork
- Finalize your rate
- Prepare cash on hand
Refinancing will still require you to spend some money on the fees and closing costs. If you’re not sure about the process then it’s best to consult an expert on it. Columbus OH Mortgage Broker has the experience and the right professionals to guide you in your refinancing journey.