Mortgage refinancing is always a good idea, but as with most aspects of the financial world, it is all about getting the timing right and the right tactics to employ. Refinancing enables you to choose the most suitable terms of mortgage repayment that are favorable according to your needs such as; paying smaller monthly installments, paying a smaller interest rate, or accessing your home’s equity.
It is Union State Bank’s goal to try and educate homeowners about refinancing and when it is beneficial. In this guide, you’ll learn why refinancing is a good idea, how to tell when you’re ready to refi, and how to do it well.
What Is Mortgage Refinancing?
Refinancing means that you get a new loan in order to pay off the current one, and the loan’s terms can be different.
Common Reasons to Refinance:
- Lower Interest Rates:
Lower the overall cost of credit throughout the term of your credit.
- Shorten Loan Terms:
Reduce the time it takes to pay your mortgage by refinancing from a 30 year to a 15 year mortgage note.
- Access Home Equity:
If you own a home, a cash-out refi can unlock that wealth.
- Switch Loan Types:
Refinance from an ARM to a fixed rate in order to avoid fluctuation of rates.
- Consolidate Debt:
Pay off higher interest debt with a single lower interest loan.
Refinancing can help you to save money, but you should always know when and how to apply it.
When Is the Right Time to Refinance?
Refinancing is not for everyone; it is not cast in a mold. Here are some scenarios where it might make sense:
- Interest Rates Have Dropped
Refinancing is worth it if the rates are at least 1-2% below your current rate since it will result in thousands of dollars in savings in terms of interest. Bankrate offers free online tools for estimating your potential savings, if you use a specific credit card.
- Your Credit Score Has Improved
A better credit score can qualify you for more favorable rates and terms. If your score has increased significantly since you first took out your mortgage, refinancing might be beneficial.
- You Need Lower Monthly Payments
Refinancing to a longer loan term can reduce your monthly payments, freeing up cash for other financial priorities.
- How You Can Repay Your Loan in Less Time
Reducing the loan period will cost you less in interest but expect to pay more every month.
- You are in the Process of Debt Management
A cash-out refinance can assist you to clear credit card debt or personal loan with high interest rates; but will see an increase in the mortgage balance.
- Your ARM Is About to Adjust
When you are close to the adjustment period on an adjustable-rate mortgage, refinancing is good because you can settle for a fixed rate mortgage.
How to refinance your mortgage
Refinancing has a number of stages, but it is very important to plan it well.
- Evaluate Your Financial Goals
Decide why you want to refinance, if it is to lower the monthly installments, gain cash out or a shorter loan period.
- Check Your Credit Score
Credit score is a major determinant of the terms that you are likely to be given when you refinance. To secure the best rates, one must score 700 and above.
- Gather Financial Documents
Expect the lenders to ask for your proof of income, tax returns, bank statements and details of your current mortgage.
- Compare Lenders
You should use this as a starting point, shop around for the best rates and terms among lenders. Our refinancing packages at Union State Bank are affordable and will be designed to suit your unique needs.
- Understand Closing Costs
Refinancing has its own expense such as application fees, fees to appraise the property, title fees, amongst others. These may be as low as 2-5% of the loan amount.
- Lock in Your Rate
When you decide on a certain rate, you should fix it to bear no impacts from market fluctuations.
- Close on Your Loan
Always read every document before signing it. When closed, your new loan pays off the old one, and you start replying according to new conditions.
Pros and Cons of Refinancing
Advantages:
- Lower monthly payments.
- A possibility to save on interest.
- The freedom to obtain cash out of equity.
- Improved loan terms.
Disadvantages:
- Closing costs can be expensive.
- Extending your loan term may increase total interest paid.
- Cash-out refinancing increases your mortgage balance.
- Your home is still used as collateral.
Weigh these pros and cons carefully to ensure refinancing aligns with your financial goals.
FAQs About Refinancing
Q1: How long does the refinancing process take?
Refinancing typically takes 30-45 days, though this can vary depending on your lender and the complexity of your financial situation.
Q2: Can I refinance if my home’s value has decreased?
Yes, but it may limit your options. Programs like HARP (Home Affordable Refinance Program) may help if you owe more than your home’s value.
Q3: Is refinancing worth it if I plan to sell soon?
If you’re planning to move within a few years, the upfront costs of refinancing may outweigh the benefits. Use a break-even analysis to determine if refinancing makes sense.
Q4: Can I refinance with the same lender?
Yes, but it’s worth shopping around to ensure you’re getting the best rate and terms.
Q5: Does refinancing hurt my credit score?
A refinance application triggers a hard inquiry, which may lower your score temporarily. However, the long-term benefits of better terms can outweigh this impact.
Union State Bank: Your Partner in Mortgage Refinancing
At Union State Bank, we’re committed to making the refinancing process straightforward and stress-free. Our mortgage specialists work with you to:
- Analyze your financial situation.
- Find competitive rates.
- Guide you through the paperwork and process.
Whether you’re looking to save money, access equity, or achieve other financial goals, we’re here to help. Explore our refinancing options or contact us today to get started.
Bottom Line
Refinancing your mortgage is a powerful financial tool, but it’s important to assess your goals, timing, and costs. By understanding the process and working with a trusted partner like Union State Bank, you can make informed decisions that benefit your financial future.