January 14th, 2020 8:39 AM by Jackie A. Graves, President
mortgage can potentially get you a lower interest rate, lower your monthly
payments and possibly even shorten the term of your loan. But what are the
reasons not to refinance your home and when is refinancing a bad idea? It’s
important to know when and when not to refinance your mortgage as well as how
to find the best refinance lender for your situation to figure out if
refinancing is the right financial move for you.
your home means taking out a new mortgage to replace your existing one. You may
want to do this for a few different reasons. When interest rates go down, you
may be able to get a new loan with a better interest rate, which will in turn
lower your monthly mortgage payments.
also take advantage of low interest rates by refinancing with a loan that has a
shorter term. This will help you pay off your mortgage faster while keeping
your monthly payments affordable.
common reason to refinance is to get equity out of your home. The money you
pull out can be used to pay off high-interest debt, make home repairs and
upgrades or pay for other big expenses.
refinance makes sense when it will save the homeowner money. It may also be the
best option when the owner must raise funds and all other options are either
exhausted or more expensive,” says Michael Drake, president of PMG Home Loans.
refinancing while interest rates are low will help you meet your financial
goals then you should consider it. Refinancing at the right time will lower
your monthly mortgage payments, allowing you to put more money toward
retirement and savings. Taking out a new loan could also shave years off your
mortgage and ensure that you enter retirement with less debt.
some of the equity in your home may also be a good financial decision depending
on your circumstances. If you have high-interest credit card debt, for example,
taking out a bigger loan to pay it off will save you money on interest and get
you out of the debt cycle.
“A home is
considered an appreciating asset and the funds should be used for equally wise
investments,” Drake said.
a new home loan can definitely help you meet your financial goals. However,
there are a few good reasons why you may not want to refinance your mortgage.
If you plan
on selling your home soon, refinancing could actually cost you money. It
typically takes a few years to recover the money spent on closing costs, so
don’t refinance unless you’re sure you want to stay in your home for at least a
few more years.
reason not to refinance is poor credit. You won’t be able to qualify for a loan
with a good interest rate if you have below-average credit, so you should work
on raising it before you try to refinance.
can’t afford to pay the closing costs associated with refinancing, then you may
also want to hold off. While some lenders do offer refinancing options with no
closing costs, they come with higher interest rates that will eat into your
savings. It’s usually worth it to wait and save up the cash you need to pay for
closing costs out of pocket.
reason to delay refinancing is if you don’t have enough equity in your home. Homeowners
who have less than 20% equity usually have trouble qualifying for conventional
loans because they’re seen as higher-risk. Some government programs allow you
to refinance with low equity, but it’s usually better to wait.
also steer away from refinancing if you’re already deep into your mortgage. If
you’re 10 years into paying off a 30 year loan, for example, getting a new 30
year mortgage may not make financial sense. By doing so, you’ll be adding
another ten years of payments to your mortgage, which could outweigh any
savings you get from refinancing.
If you plan
on staying in your home and interest rates have dropped, you may want to
consider refinancing. As a general rule, refinancing will save you money if you
can get an interest rate that’s 1% to 2% below your current rate.
take out a new home loan, you’ll have to pay closing costs, which typically
equal 3% to 6% of the total loan amount. However, if interest rates are low
enough, the savings you’ll get over the life of the loan will far outweigh the
costs. Before you take out the loan, though, make sure that you crunch the
numbers or use a refinance calculator to ensure that the savings will be worth
refinancing is worthwhile even if interest rates haven’t dropped much. If you
have an adjustable-rate mortgage and you’re worried about interest rates
rising, you may want to switch to a fixed-rate mortgage to lock in a
predictable interest rate. Just make sure that you shop around to get the best
mortgage rate possible.
of the necessary information is a key component of selecting the best refinance
option. “Whenever a buyer or homeowner is considering a mortgage loan or
refinance, they should ask the lenders for a Good Faith Estimate (GFE). This
document will show a borrower the interest rate and all associated closing
costs,” Drake said. “This is the best way to do a comprehensive comparison of
the options before them.”
borrower focuses on interest rates or closing costs exclusively, they may not
be able to determine which lender is truly giving them the best deal,” Drake
also take the reputation of each lender into account and consider any perks
that they offer, such as round-the-clock customer service or rewards points.
America may be a good lender to consider because it provides competitive rates
and top-notch customer service. The bank has a Home Loan Navigator portal that
allows you to upload documents, download important paperwork, e-sign documents
and track the progress of your loan. You’ll also get help navigating the
refinancing process from one of the bank’s experienced loan officers.
Bank of America is offering low refinance rates well under 4%. You can apply
online, in person or over the phone, and you may even get same day preapproval.
However, you won’t know which company will offer you the best deal until you
get a few quotes.
your home can be a good fiscal decision, but you need to do it at the right
time and for the right reasons. If you plan on moving in the near future or you
have below-average credit, you should probably hold off. Otherwise, take your
time to find the right lender and understand the terms of your new loan. No
cost refinancing options may sound attractive but they often come with higher
interest rates that eat into your savings. Make sure you do the math and read
the fine print to ensure it will save you money in the long run.
Source: To view the original article click here