Choosing whether you want to refinance your home loan is a big decision that requires much consideration. You can finance just about any loan—but it is especially useful with mortgages.
Homeowners may be in a position to change their loan terms to more beneficial ones depending on whether their financial circumstances have improved or not. Whether you’re experienced in refinancing or are pursuing it for the first time, relying on reputable mortgage companies for help will help you choose the right option for your needs.
The Basics of Refinancing
Refinancing your current loan involves taking on a new loan to pay for your existing mortgage and then continue making payments on the new loan, including the new interest rate.
Start by thinking of what you’d like to improve in your current loan term. Perhaps your financial situation has improved, and you’re thinking about shortening your loan to save on interest. Homeowners can also extend the payment terms to make monthly payments more manageable.
Look around for lenders that can offer better terms depending on your needs. Once your refinance loan is approved and the process closed, your previous loan will be paid off in its entirety, and you can now pay according to the terms of your new loan.
Advantages and Disadvantages of Refinancing
When you approach a mortgage company with the intention to refinance, make sure you have a thorough discussion with them on the benefits and risks of refinancing. Some of the pros include, but are not limited to, the following:
- Refinancing into a loan with lower interest rates can reduce your monthly payments that contribute to significant savings over the long term. Ask your lender if you qualify for a lower rate based on your credit score or improved market conditions.
- You can extend or reduce the length of the loan term, depending on your financial capability.
- You can consolidate your other loans into one if you can get a lower interest rate for easy monitoring of payments.
- If rates are currently low but are expected to rise, then you can switch over to a fixed-rate loan to secure lower and more predictable monthly payments compared to variable-rate loans.
Remember that refinancing isn’t always the best option and has a few disadvantages to consider before making a final decision:
- It can be costly, with refinancing fees ranging from 3% to 6% of the outstanding principal. These typically include fees for the application, inspection, and closing costs.
- If you refinance for a longer loan term with lower monthly payments, then you’ll end up paying more in interest throughout the lifespan of the loan term.
- Refinancing can increase the risk to your property in some instances.
Making the Decision to Refinance
In order to come to a secure decision on refinancing your mortgage, consider clearing any issues with your credit to obtain the highest score possible and research on interest rates you are aiming to secure. Avoid taking on any new debt during the refinancing process since this may affect the deal. It’s highly advisable to hold off on refinancing if one’s credit score is low to prevent an unnecessarily high loan balance.
It’s also important to remember that the advantages of refinancing are observed over the long term, so living in a property long enough is key to reaping the savings. One of the perks of doing a cash-out refinance is that you can use the equity in your home for cash to reinvest into your property.
Finally, when finding prospective lenders, don’t just settle on the first one that provides you with a reasonable quote. Shop around for their competitors to get the best rates, and you may even get to keep your current lender for better terms depending on how you negotiate.
Refinancing can be a great decision for homeowners who want to make the most of their home loan to fit their financial capabilities. Knowing the basics, advantages, and disadvantages can help you decide exactly how this can be done. By discussing these details with a reputable mortgage broker and lender, you can be sure to make a move that is most beneficial for you in the long term.
Finding reputable loan places in Columbus is essential if you’re looking for your dream home, consolidating your debt, or refinancing. Here at JTS & Co., we aim to create a lifetime partnership with our clients for all their mortgage needs. Apply with us today, and let us help you out!