When Should You Refinance?

Refinance

When Should I Refinance?

Low-interest rates have many homeowners wondering if it’s a good time to refinance. Refinancing can save you a lot of money in the long term when done correctly. It’s important to consider the drawbacks as well. Here are some reasons why you might want to refinance, and a few things to be cautious of.

Reasons you may want to refinance:

1. To lower your monthly payment. If today’s interest rates are lower than when you purchased your home, refinancing to a lower rate will reduce your monthly payment down, freeing up cash to help with other bills, your children’s education, or to save towards retirement.

2. To pay off your mortgage earlier. A great way to use the money you save with a lower mortgage payment is to apply it right to your principle, which will help you pay your loan off earlier.

3. To take advantage of a better credit score. If your credit score has increased significantly since you bought your home, you may get a better loan if you refinance.

4. To save on total interest. For some, the desire to pay less interest overall makes refinancing an attractive option. Reducing the interest rate and/or the loan term will save you money long term.

5. To change loan types. If you have an adjustable-rate mortgage that has been increasing or is nearing the end of the fixed period, you may want to switch to a fixed-rate mortgage.

If you have extra cash on hand to make larger monthly payments, it may make sense to change to a 15-year mortgage so you can pay it off earlier.

6. To consolidate debt or take cash out. If you have built up equity in your home, you may be able to borrow against your home to obtain cash to pay off higher-interest debt, to make improvements on your home, or for things like your children’s education or medical expenses.

Be careful when borrowing against your home. If the cash you take out goes to increasing your debt rather than resolving it, then you could end up putting your home in jeopardy.

Don’t forget about the closing costs involved in refinancing. You will have fees associated with your new loan just like you did when you purchased your home, so remember to figure the closing costs when you do the math.

Also, be cautious about extending your loan term. If you refinance with a 30-year mortgage when you are 10-15 years or more into your current mortgage, you’ll end up paying way more in interest overall, and have extended your payments for many more years.

Of course, a mortgage lender is the best resource for answering your financing questions. If you need someone to talk to further, I’m happy to give you a referral.

LOANS: Pre-Approval v. Pre-Qualification: What, How & When?

Getting a house loan

Let’s face it, it isn’t all that common that people can pay cash for a house.  This means they must get a loan, and that requires several factors.  Most people will jump into house hunting without knowing what to do or what to expect.  Let me start from the beginning with a couple definitions…

THE WHAT A lot of people get mixed up on whether they are pre-qualified for a loan or pre-approved, and maybe some people didn’t even know there was a difference.  Pre-qualification is the initial step you may take when first contacting a lender.  They will ask you questions and you will respond with your answers, simple.  This can even be done over the phone.  The lender’s response is what you will likely qualify for if you were to fully apply for a loan.  Pre-approval on the other hand is more in-depth digging.  In this process, the lender will require proof of what you have said by asking for several different documents.  Once the lender has everything he/she needs, then they will be able to fully approve you for your loan.

THE HOW Ready to figure out what type of loan you qualify for?  Let me take it back a step and let you know that the first step in the Home Buying Process is to find a REALTOR® to work in your best interests (if you’d like my Home Buying Process document, let me know-I am happy to share resources).  Once you’ve found yourself a real estate agent you’re comfortable with, ask them about lenders and for recommendations.  Usually agents will have several in their wheelhouse and can steer you in the right direction.  You’ll want to contact not one or two, but at least three different lenders to see who can get you the best loan terms-not every company/bank is the same.  You also want to find someone who you know will communicate well with you.  You pick your lender and then the process begins!  The lender and your real estate agent should guide you along the way.

THE WHEN Before you begin looking for a home, you’ll want to speak with lenders and find one who best suits you-as I stated above.  The key word in the previous sentence was “before“.  You do not want to jump into your home search without knowing what you qualify for.  You can assume you will be at a certain price range and be looking at things way over your real capability.  Once you move down to homes more in your price range, you may never be satisfied with what you see because you now have unrealistic expectations.  Another reason you should go to a lender before looking for homes, is so you are ready to jump on a house whenever you need to.  Usually people like to see a letter of pre-qualification or approval submitted with an offer (and sometimes they require it).  This shows the seller you are ready and have taken the necessary steps to go through with the transaction.  If you see a home you love and you don’t have a letter when some other buyer does…you may lose the house.

Hopefully this information has been beneficial and you can now relay it to your friends and family to help them out in the home buying process.  Let me know if you’re ready to take that step yourself, contact me by call or text at 502.320.7750 or by email at Cassidy.NextHome@gmail.com 🙂