If you’re a homeowner, you’ve probably heard that mortgage refinancing could save you money. But what you might not know is whether or not refinancing is the right option for you – in terms of your income, the size of your home loan, and the financial market as a whole.
To help homeowners understand more about what refinancing really is and what it can offer, HUECU gives you the Only Guide You’ll Ever Need to Mortgage Refinancing. Read on for must-know info, plus tips and tricks that can help you determine if mortgage refinancing makes sense for you.
What is mortgage refinancing?
Mortgage refinancing means taking out a new home loan to pay off your old one. Why replace one loan with another? Because sometimes, the new loan can offer a lower interest rate or better terms than the first one. So, in the end, mortgage refinancing might lower your monthly payments, help you pay off your home more quickly, or simply save you money in the long term.
How does refinancing reduce my interest rate?
If there’s been a recent drop in market interest rates, it could be a great time to consider mortgage refinancing. When market interest rates drop, you can take out a new loan and take advantage of those lower rates; which means reduced monthly payments. You can speak to an HUECU loan expert to learn more about what rate and terms apply to you.
Why shorten the length of my loan?
Even if market interest rates haven’t fallen, mortgage refinancing can still lower your interest owed. How? By replacing your current mortgage with one that’s not as long-term. Shorter mortgages generally have lower interest rates, so if you’re now in a better financial situation than when you took out the loan, you could for example change from a 30-year-loan to a 15-year-one. If you’re able to afford higher monthly payments, you’ll save more money in the end.
How can I lower my monthly payments?
On the other hand, if you’re finding it a struggle to make monthly mortgage payments, you might consider mortgage refinancing in order to increase the life of your loan and pay less each month. While this will likely mean paying more interest over the long term, it can still be a good option to achieve control over your expenses in the short term.
Should I switch from an adjustable rate to a fixed rate mortgage?
An adjustable rate mortgage usually offers lower monthly interest rates at the beginning of the loan, but as time goes on, rates and payments can begin to rise. Therefore, homeowners who initially chose an adjustable rate mortgage may wish to refinance and get a fixed rate mortgage instead. Fixed rate mortgages are more stable, so rates and payments remain constant – making them a good choice for people who intend to own their home for the long term.
Is mortgage refinancing available to everyone?
In general, it’s easier to qualify for mortgaging refinancing if you have 20 percent equity in your house, or more – meaning you fully own that portion of the house. If your down payment was on the small side and you haven’t been paying off your mortgage for a very long time, talk with a financial advisor to learn how much equity you have in your home, and whether or not you qualify for mortgage refinancing.
Does my credit score affect my ability to refinance?
Many mortgage refinancing options require a credit score of at least 580, and as high as 680, to qualify. Having a suitable credit score demonstrates to your lender that you have the resources and payment history to be able to pay off the new loan you’ll be taking out. If your credit score isn’t as high as you’d like it to be, you can start to improve it by paying bills on time and not letting credit card debt pile up. Or, if you have other assets such as property, you can use those to demonstrate financial health if you’re still building up your credit score.
What if I’m between jobs?
Similar to getting your first mortgage, you’ll find that when it comes to mortgage refinancing, lenders prefer to work with people who can demonstrate steady income. If you’re not sure whether or not you’re making enough money to quality for mortgage refinancing, you can chat with a financial advisor or check out this mortgage calculator from Bankrate. Unfortunately, mortgage refinancing can be more difficult if you’re self-employed – but not impossible, so long as you’ve got the documentation to prove an income-generating business that means you’ll be able to afford your mortgage payments.