II. Getting Ready To Refinance
MORTGAGE EDUCATION
REASONS TO REFINANCE
One of the best ways to utilize the equity in your home is through refinancing your mortgage. When you’re refinancing to take cash out, you’ll be refinancing for a higher loan amount than what is owed by you and the difference can be pocketed, and there won’t be any taxes on the proceeds you’ll receive.
Most homeowners who’re already struggling with student loan debts, and high-interest credit card debts tend to use the cash from their home to pay it off. You can take out cash for anything you require, whether it is to finance for your education or for home improvements. One of the main reasons a cash-out refinance is a great way to pay off or consolidate your debt is because the mortgage interest rates will be lower than the interest rates on other types of debts. Apart from that, mortgage interest is tax-deductible, while interest on other debts isn’t.
If you’ve built up enough equity and have been paying off your loan for a significant time, you may qualify to take cash from your home. Moreover, if the value of your property has increased, you can do a cash-out refinance, since a higher home value means that the lender can give you more cash to finance it.
You can increase your budget for more important things by getting a lower mortgage payment, and there are numerous ways you can go about lowering your payment through refinancing.
In the first method, you can refinance at a lower rate. You can check if the rates are lower than what they had been when you purchased your home, and you can talk with your lender to find out your interest rate. To get a lower rate means that the interest on your monthly payments will be lowered, and you can take advantage of big interest savings in the future.
In the second method, you could choose to refinance so that you get rid of your mortgage insurance, which is a monthly fee that you pay to protect the lender if you ever default on the loan. You’ll only need to pay mortgage insurance if you’ve paid less than 20% down payment on the home. Refinancing to stop paying monthly mortgage insurance will help you save hundreds of dollars every month.
In the third method, you can change your mortgage term to lower your payments. Increasing the length of your term will stretch out the payments you make over more years, and that means you’ll be paying smaller amounts.
There are other methods you can try to get lower payments, but you should always check with your lender first, to find out how they can help you acquire a payment that is suitable for your budget.
One of the best ways to save money on interest is by shortening the mortgage term, which will also allow you to acquire a better insurance rate. Fewer years of payment and a better interest rate will allow you to make big interest savings throughout the course of the mortgage.
But how does this work? Here’s a simple example: let’s say you have a $200,000 loan, and if it’s a 30-Year loan with an interest rate of 3.5%, you could end up paying around $123,000 in interest throughout the loan duration. However, by cutting your term in half, you’ll end up paying around $57,000 in interest through the loan. There’s a $66,000 difference, and we haven’t even considered that a shorter term will mean you’ll get lower interest rates as well, and more savings.
One thing about shortening the mortgage terms that you should know is that your monthly mortgage payments will increase. However, only a small amount of your payment will be for the interest, as most of it will be for paying your loan balance. That will help you build equity and you can pay off your home quickly as well.
THINGS YOU NEED TO EVALUATE BEFORE REFINANCING
You must evaluate your financial situation, once you’ve set a clear goal in your mind. To do so, you must look at 4 important things, which are your debt-to-income ratio (DTI), the value of your home, your monthly mortgage payments, and your credit score.
There are a lot of resources available online that will help you learn about your credit score free of cost. Having knowledge about your credit score will help you understand what kind and type of mortgage refinancing options are available to you.
You will have a better chance at evaluating your options if you know what role the monthly mortgage payments play in your budget. For instance, if you’re shortening your term or taking cash out, it’s important that you know if there is space in your budget for making higher monthly payments. If you’ve decided to make lower monthly payments, you’ll want to find out how much you should lower your payments for refinancing to work in your benefit.
Before you go down the refinancing road, you’ll want to research the estimated value of your home. Your lender isn’t going to lend you more money than your house is worth, and if the appraisal value for your home is less than what you expect, it will affect on how you refinance, especially if you’re looking to get rid of mortgage insurance or want to take cash out.
Checking the sales prices of homes that are similar to yours in the same area is the best way to get an estimated value for your home and looking for recent sales is ideal. You’ll also know how much equity you have by learning the value of your home, and all you need to do to find out the equity is to subtract your current mortgage balance from the estimated value of your home.
You will also need to consider your DTI, which will be your monthly debt payments divided by your gross monthly income. Lenders use DTI to measure whether you can repay the money you’ve borrowed. So, if you’re paying $1,000 every month for your mortgage, and a further $500 for other debts (like student loans, credit card debt, and auto loans), your monthly debts will be around $1,500. So, if your gross monthly income is $4,500, your DTI ratio is going to be 33%.
The maximum DTI will vary depending on the type of loan you’re acquiring, and most lenders require a DTI ratio of 50% or lower to qualify. A higher DTI will limit your refinance options and may impact on whether you can refinance at all.
REASONS TO REFINANCE
Before you decide whether refinancing is a good option for you, it’s important that you set clear goals for yourself. Taking cash out, shortening the mortgage term, and getting a lower payment are all legitimate reasons for why people would want to refinance their mortgage. We’ll look at them in greater detail below for you:
One of the best ways to utilize the equity in your home is through refinancing your mortgage. When you’re refinancing to take cash out, you’ll be refinancing for a higher loan amount than what is owed by you and the difference can be pocketed, and there won’t be any taxes on the proceeds you’ll receive.
Most homeowners who’re already struggling with student loan debts, and high-interest credit card debts tend to use the cash from their home to pay it off. You can take out cash for anything you require, whether it is to finance for your education or for home improvements. One of the main reasons a cash-out refinance is a great way to pay off or consolidate your debt is because the mortgage interest rates will be lower than the interest rates on other types of debts. Apart from that, mortgage interest is tax-deductible, while interest on other debts isn’t.
If you’ve built up enough equity and have been paying off your loan for a significant time, you may qualify to take cash from your home. Moreover, if the value of your property has increased, you can do a cash-out refinance, since a higher home value means that the lender can give you more cash to finance it.
You can increase your budget for more important things by getting a lower mortgage payment, and there are numerous ways you can go about lowering your payment through refinancing.
In the first method, you can refinance at a lower rate. You can check if the rates are lower than what they had been when you purchased your home, and you can talk with your lender to find out your interest rate. To get a lower rate means that the interest on your monthly payments will be lowered, and you can take advantage of big interest savings in the future.
In the second method, you could choose to refinance so that you get rid of your mortgage insurance, which is a monthly fee that you pay to protect the lender if you ever default on the loan. You’ll only need to pay mortgage insurance if you’ve paid less than 20% down payment on the home. Refinancing to stop paying monthly mortgage insurance will help you save hundreds of dollars every month.
In the third method, you can change your mortgage term to lower your payments. Increasing the length of your term will stretch out the payments you make over more years, and that means you’ll be paying smaller amounts.
There are other methods you can try to get lower payments, but you should always check with your lender first, to find out how they can help you acquire a payment that is suitable for your budget.
One of the best ways to save money on interest is by shortening the mortgage term, which will also allow you to acquire a better insurance rate. Fewer years of payment and a better interest rate will allow you to make big interest savings throughout the course of the mortgage.
But how does this work? Here’s a simple example: let’s say you have a $200,000 loan, and if it’s a 30-Year loan with an interest rate of 3.5%, you could end up paying around $123,000 in interest throughout the loan duration. However, by cutting your term in half, you’ll end up paying around $57,000 in interest through the loan. There’s a $66,000 difference, and we haven’t even considered that a shorter term will mean you’ll get lower interest rates as well, and more savings.
One thing about shortening the mortgage terms that you should know is that your monthly mortgage payments will increase. However, only a small amount of your payment will be for the interest, as most of it will be for paying your loan balance. That will help you build equity and you can pay off your home quickly as well.
