How to know if refinancing your home is right for you
There are many opinions on mortgage refinancing. A few of them are actually worth listening to. How can you separate fact from fiction? Let’s start with understanding the process.
Refinancing is financing a home loan for the second time. The homeowner goes under contract with a new lender. The new lender pays off the loan from the original lender in full. The homeowner is now back at square one when it comes to paying off their home loan.
Getting Out Of An ARM
The interest rate for an adjustable rate mortgage can fluctuate throughout the life of the loan. It could decrease, but it can also increase. Many homeowners refinance to a fixed rate mortgage as soon as possible to maintain a stable interest rate.
When a home is refinanced, the new loan is for the current value of the home. Often, the homeowner gets the money they have paid towards the original loan back.
For example, if you purchased a house for $100,000 and have already paid $10,000 towards the loan, upon refinancing, you could get $10,000 back as equity. This money can be used for investment, repairing the home, or to build up savings.
Refinancing is essentially buying your home again. You’re starting over with the loan, so you need to get something substantial in return. Are you in dire need of the equity you’ll get from refinancing? Is the decrease in the interest rate significant enough to refinance?
Refinancing should either reduce the interest rate, change the terms, or decrease the length of a mortgage enough to save money. If it doesn’t accomplish this, pass up the opportunity.
It’s one of those major financial decisions that will ultimately come down to your unique situation, but it deserves serious consideration before jumping into it!