Due to the current pandemic effect on every sector and personal finances, you may be considering refinancing your home. If this is your situation, we have provided some options for you to consider.
Refinancing a mortgage means paying off an existing loan and replacing it with a new one. Since refinancing can cost between 3% and 6% of a loan’s principal and as with an original mortgage, requires an appraisal, title search, and application fees, it’s important for a homeowner to determine whether refinancing is a wise financial decision.
When you refinance, you are likely to get a lower interest rate. This would result in lower monthly mortgage payments. You can move from a longer-term loan to a shorter-term loan. If rates are low, you can reduce your interest payments.
Also, you can finish paying off your loan faster and be free of debt sooner. By making monthly mortgage payments over time and making improvements to your home, you build up equity. By refinancing your home, you may be able to pull money from the equity you have built.
However, you should also consider that your long-term savings on refinancing your home may be very little or nonexistent. This could happen if you’re refinancing into a longer-term loan, or the closing costs on your new loan are more than you can afford right now. Refinancing your home can take a lot of time. It can be a stressful process, and the savings you make may not be worth it.
Refinancing into a shorter-term loan could result in higher monthly mortgage payments. Although you may be able to afford this now, you cannot tell what your finances would look like in the future. Mortgage refinancing can lower your credit score in a variety of ways. The first of these results from the lenders checking your credit score and credit history, the hard inquiry. This can lower your credit score slightly for a short period. Your credit score can also reduce because you are paying off long-standing credit with a new one.
You should use an advanced mortgage calculator which allows you to input home value, principal, interest rate, loan term, start date, property tax, HOA dues, homeowner’s insurance and PMI to calculate how much you can afford to take and pay back and how long. Mortgage rates are not constant, you should also base your calculations on the current rates to see how rate shifts will impact monthly loan payments
If you need help working with your mortgage servicer or understanding your options, you may want to reach out to a professional to help you with your specific situation. Legitimate resources will not charge an up-front fee for their services. The Consumer Financial Protection Bureau is a U.S. government agency that makes sure banks, lenders, and other financial companies treat you fairly.
Before you make any final decision, you should always consider every possible options available to you and make your mortgage calculations correctly so you don’t land in debt that you can’t manage.