There are a lot of reasons why people choose to refinance their home loan or mortgage, but it is not a step to be taken lightly. Refinancing could save you money, it could give you a better deal, or it could end up tying you into unfavorable terms. Here’s what you need to know to make sure you don’t lose out.
You Can Refinance Your Home Loan To Get Better Interest Rates
Consider refinancing if you can get a 2% reduction, or even a 1% reduction, on your interest. There will be fees to pay to arrange refinancing a home loan, but that percentage should save you money in the long term. It is easy enough to find out what the status of mortgage rates is with a quick online check. They are down right now but don’t assume that they will stay that way.
You Can Refinance Your Home Loan To Make It Shorter
Think about reducing the length of your loan if your circumstances have changed and you are now in a much better financial position. You may also face a lower interest rate if you make the term shorter. You can refinance your home loan to lengthen the term and make your monthly repayments smaller but doing so will make the interest rate higher.
You Can Refinance Your Home Loan To Cash Out
Do your research to find out what the ramifications of refinancing to cash out will be. It can give you a much-needed injection of cash, but it may increase your loan repayment amount or may tie you into a longer term, so think carefully about whether you need to do this.
There are options available to help make the terms of a cash-out refinance more favorable. If you are a veteran interested in refinancing, you may be eligible for a VA cash-out loan which will allow you to borrow 100% of the home’s value, rather than a fraction.
You Will Need To Meet The Same Qualifications As The Previous Home Loan
Prepare for a rigorous credit checks and get your paperwork in order. The provider will be taking a hard look at your credit score and credit history, which may mean that your credit score takes a hit.
Your employment history and other debts will be looked at, and the value of the home will also be taken into consideration. The other main consideration is how consistently you have been making the payments on the existing loan. Late payments will result in less favorable terms or your application being denied.