Mortgages are complicated enough without having to worry about refinancing them. If you want to save some cash or get a better rate, then read on. A mortgage is basically a loan where you borrow money against your home to pay for something else. This could include buying furniture, paying off credit card debt or even moving into a new house. The amount you owe depends on the size of your property and the interest rates charged.
Refinancing means changing the terms of your existing mortgage. For example, you might decide to take out a smaller amount of money over a longer period of time at a lower interest rate. Refinancing also allows you to switch lenders, meaning you don’t have to go through the whole application process from scratch.
What it Means to Refinance Your Mortgage
Refinancing a mortgage means that you change your mortgage payment so that it costs less over time. If you refinance at a lower interest rate than what you originally borrowed on, you may be able to reduce how much money you pay each month on your home loan. This can be accomplished by paying off some of the existing loan balance in exchange for an additional new loan that has a lower monthly payment than the old loan.
How Does Refinancing a Mortgage Work?
Refinancing a mortgage isn’t like getting a car loan or buying a house. You’re not just paying off the old loan; you’re starting over with a brand new loan. So what happens during the process depends largely on how long you plan to live in your home and your financial situation.
If you want to move quickly, you might consider a “short sale.” A short sale allows you to sell your property without having to pay back the outstanding balance on your existing mortgage. This usually involves the bank agreeing to accept less money than the full amount owed.
In some cases, the bank will agree to forgive part of the debt, allowing you to walk away with no financial obligation but there are drawbacks to this approach. For example, if you don’t close on the sale within 90 days, the seller can reclaim the property and you won’t receive anything. Also, you’ll lose your equity — the difference between the price you sold your home for and the unpaid portion of the mortgage.
Another option is rehabilitation, where your current lender agrees to modify the terms of your original mortgage. This might include extending the term from 30 to 40 years, lowering your monthly payment, or forgiving part of the principal. However, lenders aren’t required to make such concessions, and you still owe the same amount you did before.
A third option is a refinance. With a refi, you roll your existing loan into a new one with a lower interest rate. You can do this yourself online, or you can hire a professional to handle the paperwork. Refis typically involve a longer application process, and you’ll likely have to provide additional documentation. You also have to factor in closing costs. These vary depending on whether you use a broker, a bank employee, or a licensed real estate agent. Closing costs can range anywhere from $1,500 to $9,000.
Learn more about the refinancing process
Should I Refinance my Mortgage?
Debt consolidation is a common financial strategy used by people looking to manage their monthly payments. However, if you’re considering refinancing your home loan, there are some things you’ll want to know about how it works.
The most obvious benefit of debt consolidation is that it lowers your interest rates. This can help you save thousands over the life of your loan. However, it’s important to note that you won’t necessarily see immediate savings. Your lender might take up to six months to process the request, so don’t assume that refinancing will immediately reduce your total amount owed. You’ll still pay off the same principal and interest each month, just spread out over fewer installments.
If you’re thinking about refinancing because you’ve fallen behind on your repayments, it’s worth noting that lenders typically require borrowers to show proof that they’re current on their existing loans. If you haven’t been able to keep up with your regular payments, you could find yourself facing additional fees or even having your credit rating negatively affected.
You may also consider refinancing if you plan to move within the next few years. Lenders often offer better deals to homeowners who intend to sell their property. Since you’ll likely receive a discount upfront, you might end up saving hundreds of dollars per month.
Finally, refinancing can give you access to different types of mortgages. For instance, you might be able to switch from a fixed-rate to a variable-rate mortgage or perhaps you’d like to change your repayment term, such as switching from a 30-year loan to a 15-year mortgage. We recommend speaking to a refinancing expert in order to explore all the options that are available to you.
Mortgage options available to you
When to Refinance Your Mortgage
Refinancing a mortgage can be a good way to pay down debt if you’re carrying too much interest rate risk but it can also be a bad idea if you don’t need the extra cash. Here are common reasons why homeowners decide to refinance their mortgage:
- To get a better interest rate
- To shorten the mortgage term
- To tap equity or consolidate debt
- To convert to an ARM or fixed-rate mortgage
Refinancing to Secure a Lower Interest Rate
One of the greatest benefits of refinancing is that you can save money on your monthly payments. In addition to lowering your interest rates, you may also qualify for additional cash-back rewards. When calculating how much you can afford, consider what kind of payment plan you would like to take out.
Some people choose fixed-term loans because they know exactly how much they’ll pay each month. Others opt for adjustable-term plans so they can make changes based on future home value. Your monthly mortgage payment depends on several factors, including your home price, downpayment, length of time you plan to own the house, property tax, homeowner insurance, and the current average rates for these items.
Refinancing to Shorten the Loan’s Term
Interest rates go down, so some people might be able to get a new mortgage that costs less than their current one. If you want to refinance a current 30-yr loan into a new one with a lower interest, you may be able to save some money by paying off the old loan first. But keep in mind that there could be fees associated with doing so. If you already have a low interest rate, then you might not get any savings.
Refinancing to Tap Equity or Consolidate Debt
Mortgage refinancing allows you to tap into the equity in your home to pay off debts like credit card debts, medical bills, student loans, car payments and even taxes owed to the IRS. This process usually involves taking out a new loan against your property to replace the old one. You’ll use the proceeds to repay your current debts and perhaps take advantage of lower rates offered by mortgage lenders.
Here are some tips to consider before refinancing your mortgage:
- Keep your finances together: The best way to avoid paying too much in fees and mortgage interest is to keep your finances together. If you’re already carrying several different types of debt, you might want to wait until you’ve paid down those debts before refinancing.
- Make sure you can afford it: Before you go looking for a lender, check your budget. Make sure that you can afford the monthly payment on both the old and new loans.
Refinancing to Convert to an ARM or Fixed-Rate Mortgage
The most common type of adjustable-rate mortgage (ARM), the hybrid product known as a “hybrid ARM,” combines features of both fixed-rate and variable-rate loans. A homeowner who converts to a fixed-rate mortgage will pay no additional principal during the life of his/her home loan. But he/she will still owe the same amount of money each month, even though the mortgage interest rate will change periodically.
Variable-rate mortgages work differently. With a variable-rate mortgage, the interest rate changes periodically based on market conditions. For example, if interest rates drop, the lender might adjust the interest rate up slightly, which could mean a lower monthly payment. In contrast, if interest rates rise, the lender might decrease the interest rate, resulting in a higher monthly payment.
If you want to convert to fixed-rate financing, it’s important to understand what happens to your monthly payment. This is because the initial interest rate on your loan is usually lower than the rate you’ll see on a fixed-rate mortgage, but the monthly payment is typically larger due to the fact that the loan term is longer.
Converting to a fixed-rate mortgage loan can save you money over the long run, but there are a couple of things to consider. First, if you’re considering refinancing into a fixed-rate mortgage to lock in today’s low rates, keep in mind that many lenders won’t allow you to take advantage of current rates unless you’ve been paying off your existing mortgage.
Second, if you plan to stay in your home for less than five years, you may find yourself locked into a lengthy period of high interest rates. If you decide to convert to a fixed-rate, make sure you know exactly what you’re getting into.
How Much Can I Borrow Through a Refinance?
If you want to take advantage of low mortgage rates, it’s important to understand how much you can borrow. Refinancing allows you to make improvements to your property while getting a lower interest rate. The amount of money you can borrow depends on where you live and what type of loan you apply for.
For example, most mortgage lenders won’t let you borrow more than 80% of the value of your home, depending on whether you’re borrowing against your primary residence or second home. In addition, some lenders require borrowers to maintain certain credit scores and income levels.
Mortgage Refinancing Services
Debt restructuring with a mortgage refinance is a great way to consolidate all your high-interest debt into one mortgage. The capital freed up by refinancing can be used to pay off the majority of personal debts, for example:
- Car loan;
- Personal loan;
- Personal line of credit;
- Credit card.
Combining these payments into one monthly mortgage payment, at a much lower interest rate, is a great way to manage your debt. Interested in debt consolidation services? The consultants at Refinancement Hypothécaire have the expertise to help you through the process and present you with the best options available.