Why Should You Refinance
Whatever your situation, refinancing your home loan can have a range of benefits which include:
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Lower interest rate – lowering your interest rate will reduce your minimum monthly repayments, putting more cash in your back pocket. Additionally, it will reduce the amount of interest you pay over the life of your loan, potentially saving you thousands of dollars.
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Reduce your loan term – refinancing allows you to increase or decrease your loan term, from 25 to 30 years for example or vice versa. Increasing your loan term would decrease your monthly repayments. Decreasing your loan term means you would pay off your loan quicker and reduce the amount of interest paid on the loan.
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Debt consolidation – refinancing can help you consolidate multiple debts onto your cheapest interest rate, which is generally your mortgage.
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Access new features – refinancing means you could take advantage of offset or redraw facilities, or make additional repayments on your loan, things your previous loan may not have allowed.
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Access equity – Equity is the amount you have paid off on your loan and when refinancing you can access this money. You could use it to leverage a lower interest rate, use it for a deposit on another home, or use it on a holiday or renovations.
Your Credit Score Increased A Few Points
Refinancing after your credit score improves is another way to score a lower rate. However, the exact score doesnt matter much its the credit tier you fall in that really matters.
For instance, borrowers with a score that falls between 800 and 850 are considered to have exceptional credit, though a lender may consider anything between 750 to 850 as top-tier. So if your credit score bumps up from 780 to 800, its something worth celebratingbut you likely wont qualify for a lower rate based on that score alone. On the other hand, going from a fair score of 650 to an exceptional 800 could definitely help you save money.
Best Refi Rates To Shop
To save a hundred or thousand dollars for a new loan, comparing offered refi loans from various lenders can be a big help. It opens better opportunities for loans to help you pay and settle the mortgage refinance. Here, almost $3,000 is the potential savings for a mortgage by getting five quotes. Also, according to Freddie Macs research, only three out of four borrowers, or 77%, can apply for a mortgage to one lender. This was also agreed by the study conducted or the Consumer Financial Protection Bureau.
If you still need help in hunting the best rates for mortgage and loan terms, turning to the professionals of this field is the best thing to do. These tools help in finding prequalified rates offered by multiple lenders in less than three minutes. Also, these ensure high-quality services and responses to whatever mortgage refinance concerns you have.
Now, go and get your mortgage to refinance settled for a better living. This pandemic will not be a hindrance to making the best out of this life concern.
If you are interested in even more business-related articles and information from us here at Bit Rebels, then we have a lot to choose from.
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Calculating Your Cost To Refinance Multiple Times
The decision to refinance really comes down to crunching the numbers. You can refinance as often as you like, as long as it makes financial sense .
If your goal of refinancing is to save money, youll want to consider the closing costs in comparison to your potential savings. Generally, these fees will be about 2% to 5% of the loan principal.
Another catch to keep in mind when considering refinancing is prepayment or early payoff penalties on your mortgage. Some lenders discourage borrowers from paying off their mortgages right away, as that prevents them from earning much profit on your loan. If your lender charges an early payment penalty, youll need to factor that cost into the overall savings of refinancing.
Do Credit Checks Keep You From Refinancing
Even in a still-hot sellers real estate market, refinance mortgage applications account for more than 60% of all mortgage applications, according to the Mortgage Bankers Association.
Low interest rates continue to defy the odds, and rising home values have ignited a flurry of refinances.
Some mortgage rate shoppers, however, worry about too many credit pulls which lower their credit scores. They shy away from refinancing.
After all, a lower mortgage payment wont do much good if borrowing costs rise for other items.
Fortunately, there are laws in place to protect the consumer who wants to shop around for the best mortgage rate.
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How Often Can You Refinance An Fha Loan
There are no limits on how often you can refinance with an FHA loan. FHA loans also have a streamline program that requires six months of seasoning. To qualify for FHA refinancing, you need to be current on your mortgage payments, have a recent history of paying your monthly bills when they are due, and receive a real benefit from refinancing. Learn more about FHA streamline refinancing.
Should You Refinance Your Mortgage
At the beginning of 2020, the average 30-year fixed mortgage rate was 3.86 percent, then by the end of the year, it went down to 2.96 percent. And this year, mortgage rates continue to move toward the 3 percent mark.
These shifting rates are the main reason why many homeowners seek refinancing. According to experts, you also need to consider these three factors when considering refinancing your mortgage.
You can then use these three factors to calculate your return and see if you get a positive result.
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To Take Cash Out For Investing
Even when the stock market isn’t rocky, this is not a generally good idea. The problem with cash is that it is too easy to spend. If you are disciplined and will truly use the extra money to investor to build your emergency fundthis can be a good option. However, paying down a mortgage at 4% per year can be a better deal than plunking your cash into a CD that earns 2% every year. Make sure you are a savvy investor who understands both the risks and potential upside before playing with the equity in your home.
To Reduce Your Monthly Payments
In general, reducing your monthly payments by lowering your interest rate makes financial sense. But don’t ignore the costs associated with refinancing. In addition to the closing costs and fees, which can range from 2% to 3% of your home loan, you will be making more mortgage payments if you extend your loan terms.
If, for example, you have been making payments for seven years on a 30-year mortgage and refinance into a new 30-year loan, remember you will be making seven extra years of loan payments. The refinance may still be worthwhile, but you should roll those costs into your calculations before making a final decision.
Comparing the amortization schedule of your current mortgage to the amortization schedule of the new mortgage will reveal the effect a refinance will have on your net worth.
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How Soon Can You Refinance An Fha Loan
FHA loans are backed by the federal government and they have more rules concerning refinances.
You cant get a cash-out refinance until youve been in the home for at least a year.
But if you want a lower mortgage rate or monthly payment without a cash-out, then you only have to wait seven months between refinancings. That applies whether you want a normal refinance or a streamline one.
Other Good Reasons To Refinance
Another reason to refinance is that you can lower your monthly payment.
In the previous example, that owner could save nearly $100 a month by refinancing. That kind of green adds up fast. And it can make a big difference as your financial situation changes.
Maybe a baby is on the way. Perhaps you want to buy a new car. Or youre seeking to put away more money toward a college fund. These are all important motives to reduce your mortgage payments with a lower interest rate.
Refinancing sooner versus later can also be a good strategy if you:
- Want to take extra cash out to pay for something big like home improvements
- Want to use equity for debt consolidation, paying off high-interest credit cards or personal loans
- Want to switch from an adjustable-rate mortgage to a safer fixed-rate mortgage
- Need to take a partner off your loan due to a recent separation
- Have an FHA loan, which requires mortgage insurance premiums, and you want to eliminate those extra payments. A conventional wont require private mortgage insurance if you have at least 20 percent equity in your home
- Have seen a boost in your credit score recently you may qualify for an even lower refinance rate with a higher credit score
Yes, you could save money by getting lower monthly payments. But a mortgage refinance loan can also help you with bigger-picture financial goals.
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To Take Advantage Of A No
A “no-cost” mortgage loan does not exist, so be careful when you see such an offer. There are several ways to pay for closing costs and fees when refinancing, but in every case, the fees are paid in one way or another. In other words, homeowners can pay cash from their bank account for a refinance, or they can wrap the costs into their loan and increase the size of their principal.
Another option is for the lender to pay the costs by charging a slightly higher interest rate or including closing points. You can calculate the best way for you to pay the costs by comparing the monthly payments and loan terms for each scenario before choosing the loan that works best for your finances.
When Is A Refinance Worth It
Whats most important to focus on is, what are the monthly and lifetime savings of the loan? What are the costs? And how long will it take you to recover those costs with the savings youll earn? says Ralph DiBugnara, president of Home Qualified.
Gay Cororaton, Senior Economist for the National Association of Realtors, says best candidates for refinancing are:
- Those with high mortgage rates relative to a new lower rate
- Those who intend to stay for a long time in their home
- Those who have the cash ready to pay for closing costs
Alternatively, many lenders can roll the closing costs into your mortgage principal or cover them in the form of a higher interest rate so you dont have to pay upfront.
That higher interest rate may still be far below your current rate, and it comes with no closing costs from your pocket or added to the loan balance.
Dropping your rate with no associated costs makesthe decision to refinance an easy one.
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Two Types Of Credit Inquiries: Hard And Soft
There are two types of inquiries that can occur on your credit report hard inquires and soft inquiries.
Both types of inquires allow third parties to examine your credit, but only hard inquiries will pull your scores down.
Hard inquiries occur when a financial institution checks your credit report to make a lending decision. Hard inquiries are common when you apply for a mortgage, a car loan, or a credit card.
Soft inquiries occur when a person or entity checks your credit as part of a background check. Unlike hard inquiries, soft inquires will not negatively affect your credit scores.
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Get A Shorter Term On Your Loan
Another common reason to refinance is to shorten the loan repayment period and maybe get a lower interest rate while youre at it.
Using our previous example, if you reduced the terms to a 20-year repayment period and a 4% interest rate, then you would cut 10 years and $34,570 in interest from that $500,000 mortgage loan.
Know Your Homes Equity
The first qualification you will need to refinance is the equity in your home. At the end of the first quarter of 2020, home values were still on the rise in the U.S. according to the Federal Reserve Bank of St. Louis. However, as of the third quarter of 2020, the median sales price of homes sold in the U.S. was slightly down as a result of the economic recession caused by the global COVID-19 pandemic.
Furthermore, according to data reported by CoreLogic at the end of the third quarter of 2020, U.S. homeowners with mortgages saw their equity increase by a total of $1 trillion since the third quarter of 2019, an increase of 10.8%, year over year.
Still, some homes have not regained their value, and some homeowners have low equity. Refinancing with little or no equity is not always possible with conventional lenders. However, some government programs are available. The best way to find out if you qualify for a particular program is to visit a lender and discuss your individual needs. Homeowners with at least 20% equity will have an easier time qualifying for a new loan.
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Fewer Proceeds After Selling
If you refinance often and extend your loan term each time you do, youll build home equity at a slower pace. Thats because during the first several years of repaying your mortgage, more of your payment goes toward interest than principal.
Additionally, as the housing market changes over time, its possible that your homes value could fall below the amount of your outstanding mortgage balance, putting you underwater on your loan. If you try to sell your home while underwater, you wont make a profit and may have to come out of pocket to cover the difference of your homes final sales price and your loan balance.
When Should You Reconsider Refinancing Your Mortgage
There are a few situations when you might want to rethink refinancing your home.
- Prepayment penalty If your existing mortgage has a prepayment penalty, consider if youll save enough to make paying the penalty fee worth it. And ask your lender if its willing to waive the penalty if you refinance your mortgage with it.
- Moving soon Do you already have your eye on a new home? Calculate your break-even point to make sure you wont lose money once you factor in the costs of refinancing.
- Existing home equity loan If you have a home equity loan or line of credit , you may have to ask that lenders permission to refinance your loan. If it doesnt agree, you might have to pay this account off before you can refinance.
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How Refinancing Affects Your Credit Score
Refinancing can also negatively affect your , since lenders verify your credit via a hard credit pull when you refinance, says Bellingham. Multiple credit inquires remain on your credit report for up to two years and could cause your credit score to drop, depending on your borrowing habits.
If youre thinking about refinancing twice within a 12-month period, youll want to ensure that your credit score is in good enough shape to withstand another minor dip when you apply for your next refinance, Bellingham says.
Reasons Why You Might Refinance Your Home More Than Once
There are lots of reasons to refinance and even to refinance more than once. Most homeowners refinance to save money, whether its for the long term or short term.
Here are a few reasons you might want to consider refinancing:
- You want to lower your interest rate
- You want to remove private mortgage insurance
- You want to reduce your monthly payment by extending your loan term
- You need extra cash
- You want to pay off your loan sooner
Here are a few times it might not be a good idea to refinance again:
- Rates havent fluctuated much and youre happy with your term
- Your loan has a prepayment penalty
- Youre not sure youll be in the home long
Credible makes comparing multiple lenders quick and easy you can see your refinance rates from our partner lenders in the table below in three minutes.
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How Refinancing Can Cost You More Over The Life Of The Loan
Refinancing may lower your monthly mortgage payment, but it could also extend the length of time youre paying your mortgage.
If youre five years into paying off your current 30-year mortgage and you refinance to a new 30-year term, youre essentially adding five more years of payments, Bellingham says. And, extra payments mean youll likely be paying more interest over the life of the loan, even if the interest rate is lower.
Plus, when you refinance frequently and lengthen the loan term each time, youll build equity more slowly.
In such cases, it may make sense to consider a shorter term loan, like one you can pay off over 10, 15, or 20 years. This leads to higher monthly payments, of course, but it also means youll likely pay lower interest rates and less interest over the life of the loan.
If your goal is to reduce your monthly payments as much as possible, you will want a loan with the lowest interest rate for the longest term, McDaniels explains. If you want to pay less interest over the length of the loan, you may want to look for the lowest interest rate and at the shortest term.
