There are many reasons to refinance your house, but there are some important caveats, too. Never make financial decisions lightly. Know what you’re getting into and why you want to do it before you start. While you can find compelling benefits to the process, it’s not right for everyone and certainly not all the time.
Fortunately, you’ve found GoPrime Mortgage, Inc. . (dba PrimeRate Mortgage Lending), an independent lender with a mission to help people understand the process. Learn the best reasons to refinance your house, the best time to do it, and what you need to know to get it done as simply as possible. Read on.
Why Refinance Your House?
When you refinance, you’re essentially paying off your existing mortgage and getting a new one. If you remember what it was like obtaining your first mortgage, you know that the process can be long and trying. You have to get all your income in order. You have to limit your debt load. And you have to pay for the privilege — all those closing costs and fees.
But there are excellent advantages for refinancing, such as:
- Lowering your interest rate and monthly payments
- Paying off other debt, possibly with higher interest rates
- Cashing out some of your equity for a vacation or other large purchase
- Consolidating your debt under a tax-deductible, low interest rate
- Using your equity to build an addition or renovate your house
- Using the cash out to start or energize a new business
- Converting a variable-rate mortgage to a fixed-rate mortgage
- Changing your mortgage lender
The most persuasive argument for refinancing your house is to reduce the interest rate you’re paying. You can save thousands of dollars over the life of your loan by lowering the rate. If you maintain the same loan duration — for example, staying with a 30-year fixed mortgage — you’ll also lower your monthly payments. So you get to live in your house for less!
The Importance of Equity
To refinance your house, you must have equity in your property. Your equity is calculated this way:
- Your home is appraised to determine its current market value.
- Whatever you still owe for your home — the balance of your current mortgage — is deducted.
- The result is the amount of equity you have.
You won’t necessarily be able to access all your equity. Your mortgage lender won’t let you borrow that full amount for the same reason you need a down payment when buying a new house. Lenders want you to have some skin in the game. So your refinanced mortgage will be some percentage of your equity. You can increase your equity in several ways:
- Pay down your current mortgage, usually over time.
- Increase the value of your home by making renovations or building additions.
- Wait for your property to rise in value with the real estate market.
The Disadvantages of Refinancing
Timing, as they say, is everything. When you start the process to refinance your house, check the current market interest rates. Since the rates fluctuate day to day, you don’t know what rate you’ll end up with until you lock it in. So if the interest rate you’re paying on your current mortgage is very close the market rate, you have less incentive to refinance because you may end up with a higher rate than you have now, which can cost you thousands of dollars.
Another problem related to refinancing is the money you need to make it happen. There are lender costs and fees associated with a refinanced loan, just as there are fees associated with getting a first mortgage. While sometimes you can roll some of those fees into the loan itself, other costs — like paying the appraiser — must be paid before you can close on your new loan. Make sure you ask your lender how much it’ll cost to your refinance your house.
Credit Worthiness Still Counts
Regardless which reasons you choose for refinancing your home, you can’t get the best interest rate with bad credit. So if you want to improve your chances of a lower interest rate for your new mortgage, raise your credit score or repair your credit. Refinancing is a great incentive to build or rebuild your credit.
just as you did when you prepared to buy your house, do all the right things to maximize your credit rating. Pay your bills — especially your mortgage — on time. Don’t change jobs or pay off all your credit cards. And finally, do everything you can to improve the value of your home for your appraisal:
- Keep the landscaping neat.
- Repair any structural problems.
- Paint the interior or exterior if it needs it.
- Clean the rooms, the carpets and the windows.
When you’re ready to refinance your house, talk to Zachery Adam at Prime Mortgage Lending of West Asheville. He’ll explain the process to you in simple English, check your credit, and prepare you for the road ahead. Make Zack your first stop on your way to refinancing.
