Refinancing is a word used frequently in the world of mortgages and Homeownership. What is it? Is this an option for me? When should I? How can I? These are all questions we ask ourselves as we explore mortgage decisions. Deciding to refinance can help you save money on your mortgage or help you shift debt to a more favorable position using the equity you have built up in your home.
What is Mortgage Refinancing
When you choose to refinance your mortgage(s) you are simply paying off your current mortgage loan(s) with a new mortgage. The process follows the same rules and steps you took when you purchased your home initially. You will need to submit an application, have your mortgage application complete an underwriting review and you will need to successfully complete all the conditions required to close on the new mortgage. Choosing to refinance can offer better terms, lowering your monthly payments and allowing you to pay off the loan sooner.
Why You Should Refinance?
The decision to refinance can be based on a number of factors, mostly it is a decision that is unique to your circumstances. You may fall into one of the below or your reason may be more personal, either way, one of our SunnyHill Financial team members can help you through the process.
- Rates have dropped and you would be able to reduce your interest rate
- You are looking to shorten the term of the mortgage ex. from a 30 year to a 15 year as you near retirement
- You have built up equity in your home and you are looking at using the equity to consolidate on debts via a Cashout Refinance
- You have improved your credit score and now qualify for a better rate based on your FICO Scores
Reduces monthly payments with lower interest rates
Refinancing into a lower rate can help lower the amount you spend in interest every month. Check out this calculator to see if refinancing your rate would save you money, or contact a team member for help. When you choose to refinance to a lower rate you generally end up reducing your monthly payments, which put more money in your pocket for savings and other expenses.
Paying off your Mortgage faster
When refinancing you may be able to shorten the length of your loan. Generally Mortgages are 30 years, 20 years, 15 years or 10 years in length, although many lenders will provide custom amortization periods based on your needs. When you refinance from a 30 year mortgage to a 15 year mortgage, you end up accelerating the payment of the loan, as you are paying more principal over a shorter period of time and less interest on the loan. Many times, payments may increase when you reduce the term, but you will be paying off the loan sooner, allowing you to become debt free much quicker.
You may have multiple debts amongst multiple lenders across a number of areas ex. Credit Card Debt or Student Loans. A Cash Out Refinance can help you take all of those debts and bundle them into a single mortgage payment, helping you control the total amount of debt and payments you pay on a monthly basis.
When Mortgage Rates Change
Mortgage rates change daily, sometimes multiple times a day, so it can be a bit overwhelming to know when is the right time to capitalize. If interest rates have fallen, even when they are in a raising rate environment, you may be able to secure a lower rate vs your current loan. It really is important that you have someone in your corner who watches rates on a daily basis to help you secure the rate that meets your mortgage goals!
When your credit has improved
Your credit score is a leading factor determining the rates you will qualify for. If you have made consistent payments and your credit score has increased it may be time to re-evaluate refinancing options. A higher credit score can lead to lower interest rates with more favorable terms.
Keeping these key things in mind when exploring refinancing can help you decide when the time is right and help you set your financial goals.