Refinancing your mortgage involves paying off your existing mortgage in order to create a new one for your home. There are a number of benefits to this, as well as some costs involved that you will need to consider. According to the Federal Reserve, people consider refinancing in order to get a lower interest rate on their mortgage or adjust its length. In addition, you may get more favorable terms based on the current state of the market.
However, there are questions that you will need to ask before refinancing in order to make sure you are making the right decision.
Is There Equity in Your Home?
Many homeowners nowadays are underwater, meaning that they owe more on their mortgages than their home is worth. Being underwater may not necessarily exclude you from getting a new loan. Talk with a mortgage lender to discuss Fannie Mae and Freddie Mac programs, as well as FHA loans, that you could qualify for.
What Are Your Goals Financially?
Are you looking to refinance in order to lower your monthly payment? Do you want to get a new mortgage to shorten the length of the loan so you can be free and clear sooner? Whatever your motives, it is important to talk about your financial goals so that you can get a refinanced mortgage that fits into your plans. For example, if it is your goal to retire without a mortgage, you may not want to opt into a long loan.
Is Your Credit Good Enough?
Your credit score will play a very important role in the refinancing process because it will be used to determine your new mortgage rate. Those with a credit score over 720 will get the lower rates, while those below 620 may have difficulty finding a program at all. Discuss your credit score and what you can do to improve it with a financial advisor.
How Long Do You Want to Stay in Your Home?
Refinancing your mortgage is also about reaching the “break-even point,” when the savings begin to outweigh the costs. Talking with your mortgage banker can provide you with more details about when you can expect to break even so you know if it is worth it to refinance. For example, if you plan to stay in your home for the next five or 10 years and your break-even point is in two years, it is worth it to get a re-fi. If you plan on moving sooner than that, you likely won’t see the benefits.
Do You Have a Second Mortgage?
Those with a second mortgage on their house may face added challenges when looking to refinance. In this case, you can either choose to pay off your second loan or combine the two into a larger, single mortgage. The lender holding the second loan must agree to remain in second position behind the first lender.
The benefits of refinancing your mortgage can do a lot to help improve your financial situation moving forward. Make an appointment with a mortgage broker in Westlake village to talk over your unique situation, so that you can see the potential effects of a re-fi and get the process started. The sooner that the process is initiated, the sooner you can break even on your home and save in the future.
Written by Sean Hart. Sean is a leading expert in mortgage planning for residential home loans. As a mortgage broker in Westlake Village Sean has over 20 years of experience in financial, insurance and mortgage lending industries.