Many homeowners face refinancing at some point. There are different reasons for refinancing your mortgage. Families can choose to refinance when they have an upcoming move. Or maybe you are staying put, and you are in a better financial position than you were before. In any case, here’s a basic guide for you to understand refinancing a home loan.
What Is Refinancing?
Sometimes we hear terms all our lives, yet never fully understand their basic definition. In short, refinancing is when you pay off your original loan, while taking on a new home loan. It is important to keep in mind that you are applying for a new loan when refinancing, which means you are not guaranteed a second loan. Your mortgage lender will assess your unique financial situation to determine if refinancing is right for you. The lender will take into account your:
- Credit score.
- Current income.
- Employment history.
- Assets, like investment and retirement accounts.
- Payment history on your current home loan and other debts.
The lender will also have an appraisal conducted on your home to determine its current value. Other additional factors are reviewed by your lender depending on the type of loan you currently hold.
Why Refinance Now?
There are several main factors that influence a homeowner’s decision to refinance. We at First Option are more than happy to sit down and discuss your situation. We will help you define your goals and needs for refinancing, and customize the experience to your situation.
The number one reason for refinancing is you find yourself in a situation where your mortgage interest rates are higher than the current market interest rate. You want to save money, and in this case, refinancing is the best answer. If your credit score has improved, you could secure a lower interest rate and make lower mortgage payments.
ARM vs. FRM
Perhaps when you bought your current home, you thought you wouldn’t be staying for long and chose an adjustable rate mortgage (ARM) over a fixed-rate mortgage (FRM). Now perhaps the FRM looks more attractive because of life changes. Or it could be you want to refinance into another ARM because it has better terms. Dependent on your situation, a First Option lender can help you calculate if a 15-year or 30-year FRM is the smartest move for you and your savings, or if you should take a different route altogether. To get a head start, play around with different scenarios using our online mortgage calculator.
Consolidate Debt, Receive Cash
Consolidating debt is the third reason you may find refinancing beneficial. Perhaps you still have lingering student loans, children about to go to college, other bills with interest, or a major home improvement project on your hands. So a cash out refinance or a home equity loan could work in your favor.
Related resource: “A Cash-Out Refinance Can Save You Big on Credit Card Debt”
The above is a basic rundown of reasons why refinancing can be advantageous. There is much more to consider when it comes to refinancing, like maybe refinancing costs more than the purchase loan. We will cover other aspects and questions surrounding refinancing in future posts. In the meantime, do not hesitate to speak with an experienced First Option lender in your area. We are devoted to helping you make the right mortgage decisions for you and your family.
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