When is the Right Time to Refinance Your Home?
Wednesday, August 5, 2020, 6:00 AM | Leave Comment
Home refinancing can provide you with many benefits, depending on what you want to achieve.
With mortgage interest rates hitting lows once in a while, most homeowners tend to refinance their homes when the prices are low.
But a lower rate is not the only thing to consider, though it is usually the main reason to refinance a home.
So, when is the right time to refinance your home? Read on to find out.
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Lower payment and lower interest rates
You can decide to refinance your home to lower the rate of your monthly repayment. The timing is essential because you must identify the right time to do the refinancing to achieve this objective.
Do not focus only on fees and rates, but also on finding ways to save more. For example, you can have your loan restructured adequately so you can enjoy a better repaying experience. You can also come up with a favorable loan lock plan, which gives you a good rate and a reasonable duration. A good loan lock plan will provide you with protection if interest rates rise during the lock period.
If you aren’t happy with the rate one lender offers, or if the lender can’t reduce the prices, shop around and see if you can get a better lender elsewhere.
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Cashout
If you want to make some home improvements or pay off bills and run out of cash, FHE cashout refinancing can be your best bet. The FHA cashout refinance will replace your current mortgage with a new one whose value exceeds your remaining loan balance. You can then withdraw the difference between the two loans in cash and use the amount for your home improvements and bills.
Depending on how far you’ve gone with the repayment of the first loan, you can qualify for 80% of your home loan value or LTV. Also, remember that the deal you get will depend on your credit score.
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Shortening Your Loan’s Term
When the interest rates are down, many homeowners refinance to reduce the terms of their existing loans. How does this happen? To benefit from the low prices, you can choose a new loan with a shorter time, but with no change or a slight change in your monthly repayment.
For example, if you are on a $100,000 mortgage home at an interest of 9%, refinancing it to a 5.5% mortgage can cut your payment term by half, from 30 years to 15 years. In this case, your monthly payment will only increase by about $12. before you refinance to reduce your loan term, you must do the calculations to find your new monthly payment.
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If You’re Planning to Stay Put
One of the most critical factors you have to consider when you want to refinance is how long you are planning to live in the house and the break-even point. Break-even point refers to the time you’ll take to recoup the amount you’ll pay as a closing cost on your new mortgage.
Break-even depends on the closing cost and the new rate of interest.
In most cases, the average closing cost lies between 2% to 5%, so it may take you several years to break even. So if you are planning to move out from where you live, there would be no need to refinance. However, if you are staying for long, you can benefit from refinancing.
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Buy out the co-owner
If you co-own a house with someone else, you may decide to refinance to relieve them of ownership so you can remain as the sole owner. This usually happens in divorce cases where it is required that one partner must refinance the ex-spouse off the existing mortgage for them to keep the home. You may also consider refinancing if you co-own a property with a business partner, a relative, or friend that you want to part ways with.
Final Words
Whatever the reason for your home refinancing, perform all the calculations to ensure you are going to benefit. Also, remember to shop around to get a lender who can offer you the best deal. Above all, ensure you always have a good credit score even before you start thinking of refinancing your home.
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