Sunday, 2 February 2020

The Pros And Cons Of Refinancing Your Mortgage!

When interest rate drops, what goes through our head as a homeowner, oh my goodness, is it a good time to refinance our loan? And how does that work? And then I need to consider the pros and cons. Let's take a look at the pros and cons of refinancing your mortgage to help you make the right decisions that are best for you.

If you have any questions about your refinance home loan options please reach out to your loan officer in your area to review your individual situation with them and come into a well-informed decision that's right for you.

Let's Get Started

Let's go ahead and pop up all the different pros that you might expect from refinancing your mortgage

Pros For Refinancing Your Mortgage

  • Pro 1. If you refinance to a lower rate, you'll pay less interest every month over the lifetime of your loan.

  • Pro 2. If you have mortgage insurance and you refinance into a loan that doesn't have it, you could be saving money every month over the lifetime of your loan.

  • Pro 3. Shortening the terms of your loan might save money by paying off your loans sooner.

  • Pro 4. If you lengthen the term of your loan, you might be low on your monthly mortgage payment which might make it more affordable for you.

  • Pro 5. If you refinance from an adjustable-rate or hybrid rate into a fixed-rate, you won't have to worry about having a higher rate or a higher payment in the future.

  • Pro 6. If you have enough equity in your home, you might be able to get cash back when you refinance. You can use that cash to make repairs improvements to your home or any other things that you have as needed once. I would urge you here if you're cashing out the equity in your house use it responsibly and use it wisely.

  • Pro 7. You might be able to refinance with no out-of-pocket costs by adding your costs to your loan amount or letting your lender pay your closing costs and give you a slightly higher rate, the choice is yours.

Again, pleases review those options with your loan officer.

Let take a look at the cons you should consider refinancing your mortgage.

Cons For Refinancing Your Mortgage

  • Con 1. If you refinance to a higher rate, you might pay more interest every month and over the lifetime of your loan.

  • Con 2. If you refinance to a shorter-term, your rate might be lower but your payment could be higher.

  • Con 3. If you decide to refinance into a longer-term, it may lower your payment, but you might pay more interest over the lifetime of your loan.

  • Con 4. You have to pay closing costs which could be thousands of dollars out of pocket or tacked on to the backside of your home loan.

  • Con 5. If you plan to sell your home within the next few years, you may not recover the closing cost that you spent to refinance your loan.

  • Con 6. You will need to spend time researching lenders, choosing a loan, and gathering your financials and signing your closing documents to ensure you're making the best and right decision for you.

Benefits Of Refinance Your Mortage!

At this point, you might be wondering what are some of the benefits of refinancing a mortgage. Let's take a look at them and see how much they really mean to you.

Refinancing your mortgage could provide different benefits including:
  1. Getting A Lower rate
  2. Lowering Your Monthly Payment
  3. Getting Rid Of Your Mortgage Insurance
  4. Reducing Your Total Interest Expense Over the Lifetime Of Your Loan which also creates an opportunity to pay off your Loan Sooner.

If you've had an adjustable-rate then transferring into a fixed-rate mortgage would also give you the peace of mind and clarity of knowing that your rates not going to go up.

When Refinancing At A Higher Rate Could Make Sense!

Even on the flip side of that, what happens if you choose to refinance it to a higher rate, how is that going to impact you and why in the world would you want a higher interest rate. There are certain situations when we're financing into a higher interest rate could make sense, consider if you're trying to consolidate your debts from different credit cards, car loans, or maybe you did some home renovation projects on credit and now you're thinking yourself these are some really high-interest rates but,  if only I could tap into my home's equity, do a refinance, I could do debt consolidation and roll it into my home loan and use that equity from my home loan that I'm taking to pay off of those debts. That is certainly one way that increasing the rate could be beneficial to you.

Just take a look at the rates of all the different debts that you have, you have a credit card that's like 22% and maybe your home mortgage rate is going to be 4%, 5% or 6% or whatever the case may be, then is it worth it for you than a day, one way to get clear on that is how long is it going to take you to pay off that credit card, to pay off your student loan, your vehicle, considering this upfront and considering what the monthly payment is overall, could give you immediate cash flow upfront and trade-off being that you have a higher interest rate on your house. 

The Costs Of Refinancing Your Home Loan!

Let's take a look at some of the common fees associated with it and I would like to remind you to get a full breakdown of fees near you to reach out to a local loan officer to review the fees associated with your home loan refinance. 

On an estimated basis you could expect to pay an:
  • Originator Fee: $500-$1,000
  • Loan Origination Fee: 0%-1.5% of the loan principal
  • Loan Origination Points: 0%-3% of the loan principal
  • Commitment Fee: $200-$400
  • Document Preparation Fee: $50-$250
  • Lender's Fee: $650-$850
  • Processing Fees: $500-$1,200
  • Mortgage Underwriting Fee: $300-$400

With this in mind, it'll help you be better prepared for that conversation with a loan officer of your choice when you're reviewing your home loan refinance options with them. You might want to ask them because some of those charges said 0%, ask them what their charges are.

Other Factors To Consider

There are other things that should be factored into your decision-making process including:
  1. Current Type of Mortage that you have.
  2. The Kind That You Would be Choosing.
  3. How Long You've Had Your Mortgage.
  4. How Long You Plan To Keep Your Home.
  5. Changes In Your Credit.
  6. The Goals You Hope You Achieve By Refinancing.
  7. How Much It Will Cost You To Refinance.

Is Refinancing Your Mortgage Worth It To You?

Ultimately the only person that can make that decision is you, it depends on the reasons why you want to refinance? What your goals are? And what you hope to achieve in the process of refinancing your home? All I ask you to do is to keep your eyes open and make a well-informed decision that's right for you. Whatever you decide here, just remember ultimately you have to live with the decision and the outcome good, bad, or indifferent.

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