Maybe you are looking to refinance your home. Well, you end up taking out a new mortgage to help put you in a better financial position to pay off your existing mortgage. Sounds scary and complicated, right? Well, people do it all of the time. Do you know why you should refinance your home this year?
Well, you can get a better mortgage on more favorable terms. You’re not dealing with the classic hassles that are associated with moving. Finally, you have until the third business day after your loan closes to change your mind, if you have second thoughts.
It used to take anywhere from 38-48 days to refinance a conventional mortgage a few years ago. Note that this time can get longer when interest rates drop and homeowners are in a real hurry to refinance. Additionally, note that financing FHA or VA loans can take up to a week longer.
When Should You Refinance Your Home?
You end up paying a lower monthly mortgage rate because you can extend the term of your loan or you end up financing at a lower interest rate. Thus, you’ll also end up paying much less in interest costs because your mortgage’s interest rate will be much lower. Additionally, you won’t need mortgage insurance if and when you refinance your home.
Certain things need to be taken into account when considering a refinance. These are closing costs, origination fees, appraisal fee, insurance title fee, and credit report fee. These costs typically account for anywhere from 2-6% of your total loan amount. You won’t be able to calculate the break-even point until you know what the closing costs of your loan are. The break-even point is when your savings from the loan’s lower interest rate exceed its closing costs.
The Chance to Get a Lower Interest Rate
People are only too eager to refinance when interest rates drop. They know that both their total interest rate payments and their monthly mortgage payments can be lowered substantially.
If you’re a homeowner, you may choose to refinance when interest rates drop because you know that you will end up paying interest on a smaller principal amount which is spread over a longer mortgage term.
The first quarter of 2020 included mostly pre-pandemic refinancing activities, but 55% of current borrowers who refinanced had the same principal balance. They increased their balance by less than 5% mainly because of closing costs. Of course, you can always get a better interest rate on your mortgage, if you have a higher credit score.
Refinancing To Get at Your Home’s Equity
42% of all people who refinanced did so to increase their principal balance by at least 5%. What this means is that these owners took cash out of their home’s equity, withdrew to finance closing costs, or did some of both. Thus, taking cash out of your home may involve higher closing costs, but it’s still the cheapest way to borrow money. You can rest assured that your home will still have at least 20% of its total equity after you refinance.
If you are looking to get more information about refinancing your current home mortgage, experts at Granite West Funding at (559) 540-2275 can be of assistance. Call us today!