Basics Behind A Home Loan Refinance
A home loan refinance can be misunderstood by borrowers. Refinance means paying off your existing loan by taking out a new mortgage at a more favorable interest rate and/or terms. Sort of like trading in your car for a better one. Borrowers should consider a home loan refinance during periods of low interest rates. Typically, if your home mortgage loan carries a higher interest rate than you'd like, you have good credit and are rarely tardy in paying your bills, refinancing is a great option. Borrowers should always work with solid lenders or brokers in order to research all available options and find a home loan refinance rate that is low and affordable.
Benefits Of A Home Loan Refinance
Find lower interest rates which lower the monthly payment you make to the lender.
Reduce the time period to pay off your mortgage in order to pay it offer more quickly (thus lowering the amount of interest charges).
Increase the time period to pay off your mortgage to lower monthly payments.
Refi into a different type of loan, either adjustable rate mortgages or fixed rate loans to reflect changes to a borrowers living or economic situation.
Refi and take out equity in order to fund home improvements, college, medical expenses, etc.
How To Whether Home Loan Refinance Is Right For You
The best approach to a home loan refinance is to find a mortgage lender that you trust who can go over your options and run your financials to see what rate you would qualify for. Because it costs money to refinance, the long term savings have to make sense. A credible lender can tell you your current rate you pay, what rate you qualify for, the amount that the refi will cost and how long it will take to recoup your investment. If you plan to stay in your home for longer than the recoup period, then it makes sense (assuming you have the money to pay for the refi). If not, your broker should advise you against a home loan refinance.
The Basic Process
While it seems like it should be easier to refinance your existing mortgage as opposed to purchasing your first home, the process doesn't differ very much. Borrowers are still subject to running their credit, getting an appraisal, doing a home inspection, as well as paying closing costs and other fees. In most cases, an appraisal will also be performed on your house. The only real difference is if you are responsible for a prepayment penalty.
When applying for a mortgage refinancing loan, a low debt-to-income ratio is important, but not exclusive. A borrower can still find means of gaining a lender’s approval by applying for the loan through a bad credit lending firm. Be aware though that a home loan refinance through a bad credit lender comes with high interest rates, typically in the 9% - 12% APR range, plus points up front. However, for borrowers who would otherwise lose their home to foreclosure, this is a good last option.