Are You Thinking of Refinancing Your Home? Consider These Factors

Many reasons can drive you into refinancing your home mortgage. From lowering monthly payments, reducing interest rates to paying off your mortgage faster. But what factors do you need to consider before refinancing your home? There are more factors other than lower mortgage rates you should consider.

Here is a brief description of what refinancing is, its pros and cons, and the vital factors you need to look into. Let’s get started.

What is refinancing?

Refinancing is taking a new loan to pay off your initial mortgage loan. When you refinance your home, the lender repays your original mortgage loan with a new one, hence refinancing.

And what benefits can you realize from refinancing? Some notable ones are:

• Paying lower monthly repayments if you get the new mortgage at a reduced interest rate.
• Trading variable mortgage rate for a fixed rate.
• You can reduce your loan term and pay off your mortgage faster - let’s say if you refinance from a 20-year loan to a 10-year loan.
• With cash-out refinancing, you may get excess funds and channel them into other important financial obligations such as renovations.
• You may also consolidate other high-interest debts for a lower refinance rate.

But on the flip side, refinancing may also expose you to some financial risks. The potential risks may include:

• You may lose foreclosure protection offered by some states, such as California, or even risk penalties based on the lender’s mortgage terms.
• Increase in the repayment period.
• Costs may also increase if you don’t secure a mortgage with a lower interest rate.

Now that you know the possible benefits and dangers of refinancing, you need to consider the following five factors before making your decision.

1. Interest rate and the repayment period

Perhaps the most significant factor you need to consider when refinancing is the interest rates. We recommend that you only go for a mortgage refinance that offers a lower interest rate than your original mortgage. It would be best if you also aimed at reducing the loan term to a shorter repayment period.

2. Financial goals

Why are you refinancing anyway? Do you want to reduce your monthly repayments? Are you in need of extra cash to fund other projects? The reasons why you want to refinance your mortgage should lead you to find a loan, which suits you best.

Again, if you’re considering moving out of your home soon, then you need to think carefully about refinancing.

3. Credit score

Just like when you were obtaining the original mortgage, your credit rating also matters when refinancing. Unfortunately, if your credit score isn’t that good, you might find it hard to refinance your mortgage.

It’s important to note that, failing to qualify for refinancing can equally affect your credit score. You, therefore, need to dedicate a few months to grow your credit score before refinancing.

4. Home equity

Another factor to consider is your home equity, that is, the difference between the value of your home and the amount still owed on the original mortgage. The higher your home equity, the fewer security risks to the lender, hence greater borrowing power, which can lead to more favorable loan terms.

5. Refinancing costs

Refinancing can also be expensive if you don’t factor in accompanying costs. There can be a lot of fees such as application fee, inspection fee, attorney fee, and many more. You can always consult with a mortgage broker to find you a cost-effective, and beneficial mortgage refinance.

So, it all boils down to new loan terms, refinancing reasons, your credit score, home equity, and refinancing costs. Consider these factors and determine whether refinancing is a good option for you at this moment in time.

Do you need to refinance your home mortgage? Feel free to contact Atlantic Home Mortgage to get more information.