Refinancing your mortgage will require careful thought and consideration into many different aspects, including how long you plan to live in your home, the length of time it will take for you to manage closing costs, and the role that interest rates will play. Since you already own the property, refinancing will be easier for you than for a first-time buyer. If you’ve had your home for a significant amount of time, you will have likely accumulated a fair amount of equity, making refinancing more straightforward. If refinancing feels right to you, here are three things to know beforehand.
1. Decide Your Length of Stay3 Things to Know Before You Refinance Your Mortgage! #refinance #mortgage #homeowner Click To Tweet
Refinancing is dependent on how long you stay in your home. You must calculate your projected monthly savings once the refinance has been completed. The interest rate associated with the time-lapse will affect how high or how low your monthly payment will be. You will want to consider where interest rates will likely fall to determine whether refinancing is the smartest option. You’re not likely to know how interest rates will naturally rise and fall without doing your research.
To get a better understanding of how to refinance, refer to the mortgage refinance guide that provides all of the information you’ll need to know beforehand. This way, you can make a more educated financial decision.
2. Keep PMI Close
If you decide to refinance, you will have to submit a larger cash deposit than you anticipated in most situations and even just the thought of paying more money than you bargained for can definitely result in anxiety. Since these instances are so common when home values are declining, you will have to come to terms with the fact that your equity may ultimately suffer. With lower equity and the need to pay a larger cash deposit, you may need to lean on private mortgage insurance to make ends meet.
While this will help you out, it will also add to your monthly payment, so even if your interest rates drop, you might not end up saving very much in the end. There are situations where private mortgage insurance is not necessary, and refinancing is a smart option that will respond well to your equity percentage. Especially for homeowners with at least 20% equity, refinancing is a practical option. If your equity is this strong, you can get rid of private mortgage insurance, which is an excellent reason to start up with a new mortgage in general.
3. Remember Closing Costs
Even though the idea of refinancing your mortgage would be an act of attempting to save more money in the end, the closing costs involved in the process could cause you to rethink your decision to refinance in the first place. You will have to consider charges for many different things, including taxes, appraisal, insurance, attorney fees, and any other costs associated with refinancing.
Sometimes these costs are greater than the price for one’s initial mortgage, which could mean it will take you years to recoup. To bypass closing costs, homeowners often fall into the trap of working with lenders who promise no closing costs to refinance. Even if these situations are possible, a bank will likely cause these fees to resurface by giving you an interest rate higher than it would be, had you paid your closing costs to begin with. Refinancing your home is a game of it takes money to make money and this reality may not be applicable for every homeowner out there.
Sometimes, the best thing you and your spouse can do is settle for the most convenient option. Unfortunately, homeownership is never as cheap as you’d like it to be, but refinancing diminishes the fact that your home is an investment! Maintain the value of your home by sticking with the mortgage plan you have and look towards the future for opportunities that allow you to grow your home value. Perhaps then, refinancing will work out in your favor. Keep your chin up; you never know what the future holds!