Home refinancing can get tricky, especially in the wake of rising interest rates. If you’re also looking to tap your home’s equity, you’ve come to the right place. People consider refinancing their mortgages for many different reasons. So, whether you’re unhappy with your current loan or are looking for more flexible terms, we have you covered. Here’s everything you need to know about refinancing your mortgage.
What Is Mortgage Refinancing?
Mortgage refinancing refers to replacing your existing mortgage with a new one. The new loan may be accompanied by different requirements and terms. It may also have a completely new outlook on repayment.
However, a common change is the new interest rate, which is usually the reason most people choose to refinance. All in all, refinancing your mortgage can help you save money on interest over time and also offer lower monthly payments.
How Does Home Refinancing Work?
The process of refinancing isn’t very different from the first time you applied for a loan. The only difference is that this time a new lender will assess your financial situation and their level of risk in the agreement.
They usually base your eligibility on factors such as your credit scores and debt-to-income ratio, among many others. This way, they’re able to match you with the best possible interest rate. Since it’s a brand-new loan, it will most likely involve a new lender.
Why Should You Refinance Your Mortgage?
Is home refinancing truly worth it? Refinancing isn’t easy, especially because it involves a bunch of additional costs and paperwork. However, many people still opt for it for the following reasons:
Nothing entices people more than a chance to avail of lower interest rates. In fact, it is one of the major reasons most people choose to refinance.
Hence, if you’ve witnessed significant improvement in your credit score or if the market has changed immensely, it may be a good time to consider refinancing. Not only will it help you save money over the course of the loan, but it may also come with better terms.
Revised Loan Duration
If you have 10 years left on your 20-year mortgage, you can refinance into a 5-year loan for better savings opportunities in the long run. While this may result in increased monthly payments, you will be able to pay your loan off faster.
If you previously had an adjustable-rate mortgage, you can consider replacing it with a fixed-rate mortgage, especially if the increasing uncertainty is beginning to take a toll on you.
By refinancing your existing mortgage, you can allow yourself to explore different types of home loans and choose something that works better for your financial circumstances.
Access to More Funds
Apart from saving money, refinancing can also help you get more funds. For instance, through a cash-out refinancing, you can leverage your equity to borrow more money.
However, this may add to your debt. At the same time, it can also help you access funds for bigger expenses such as college education or large-scale home improvement at a lower interest rate.
How Does Home Refinancing Affect Your Credit?
While refinancing can have an impact on your credit, it isn’t major. There are many reasons why it may occur in the first place.
For one, when lenders run credit checks to determine your eligibility, it can reflect on the credit report. An inquiry can result in the loss of up to five points in your score.
Secondly, when you apply for other types of debt, such as credit cards, it may also take a toll on your score. Refinancing means opening another loan after closing one. Since credit history also makes part of your score, opening another loan after closing one shortens the duration. As a result, there is an impact on your score.
The good news is these effects don’t last for long. So, if you’re worried about your scores undergoing immense damage, don’t be. Instead, focus on shopping for loans within 45 days. This is because even If there are any credit pulls during this time period, they will be counted as a single inquiry.
What Are the Risks of Refinancing Your Mortgage?
While there are numerous benefits to refinancing your mortgage, there are also a bunch of risks involved. For one, your credit score may take a hit, even if it’s temporary.
There might be a delay in the payoff date if you’ve landed a loan with a longer term. Furthermore, you will also have to pay closing costs.
If rates drop significantly after closing, you may also have to deal with borrower’s remorse. All in all, refinancing a loan isn’t easy, and it certainly doesn’t happen overnight. The process can take anywhere between two to six weeks or more.
Hence, before you consider refinancing your mortgage, keep your real estate agent from Robert DeFalco Realty in the loop. They have a brilliant know-how of the local market and can help you significantly in the process.
Cash-Out Vs. Cash-In Refinance
Cash-out refinance refers to taking cash out using your home to do the spending. As a result, your mortgage debt increases, but at the same time, you also get the money that you can use to fund a bigger goal.
However, cash-in refinance refers to making a lump sum payment to bring your LTV (loan-to-value) ratio down. Using this, you can cut the overall debt burden you’re bearing while also lowering your monthly payments.
However, before using this approach, you may want to evaluate whether doing it will deprive you of your savings or more lucrative opportunities.
How Robert DeFalco Realty Can Help
All in all, home refinancing can be one of the best decisions you’ll get to make. This is especially true if you’re planning to live there for a long time because it will help you lower your interest rate and make a considerable difference in your budget.
At Robert DeFalco Realty, our trained professionals can help you make the right financial decisions, especially when it comes to buying or selling properties. Using accurate data and years of expertise, our real estate agents can help you determine when it’s a good time to refinance your mortgage. For more details, call us at 718-987-7900 or fill out our form online. You can also visit our offices for a consultation with our agents so they can help you buy your dream home within your budget.