Have you recently run into financial hardship where you cannot make payments to your mortgage on time? Are you looking to lower your payments to have extra money to pay off other bills? Or, are there other scenarios where you feel refinancing your home is the best option? When do you refinance your mortgage loan? I cannot tell you indefinitely when you should or shouldn’t refinance. I can only tell you about the two different refinancing loans that are available, and you should make your decision based off those options.
The two major types of refinances are Rate and Term and Cash-out. Here are the differences between the two. With Rate and Term, the amount of your mortgage doesn’t change. You are swapping out your present mortgage terms (the term is the total years it will take you to repay the loan) for a newer and better one, with a lower payment. With this loan, even if you have poor credit, it’s easier to get the loan. You have the gratification of lower interest rates or lessen your term to help build your equity sooner.
With Cash-out, your mortgage does change; it’s bigger than your previous one. Under the new terms with this refinance, you are advanced money in the form of cash, which has been taken out of your equity. This money is to help you settle any other arrears. I would like to also inform you of some pros and cons of the cash-out refinance. It’s easier to be qualified for this type of refinancing. You have ownership of the home and have a payment history that’s already been verified. Your indebted amount is less than the value of the home. That right there is what qualifies you. The cons of cash-out is you restart the current mortgage, with the terms being extended on payments that must be made. If you borrow more than 80% of what your home is worth, you might be obligated to pay for a PMI (Private Mortgage Insurance). That could possibly add up to hundreds of dollars to your monthly payments. Most likely, you will not qualify for this refinance until you have resided at the home for at least a year.
Refinancing may cost you more in the end if you begin a new loan that is for a 30-year duration.
Now you have knowledge about your two different types of refinances. After you have chosen the option that is best suited for your situation, I’d like to tell you what you should do from there. Below I have listed some step-by-step instructions on how to proceed accordingly for refinancing your home:
· Set your goal. Use wisdom when listing your reasons to finance
· Find out your credit rating
· Investigate the worth of your home presently
· Hunt for the best prices
· Understand the total, including any extras
· Collect necessary paperwork
· Secure your price
· Cash only; no check or credit cards