There are a lot of aspects of real estate that depend on the right timing. Refinancing certainly counts as one of them since there are closing costs involved, either added to the loan amount or paid upfront. In a nutshell, if the rate on your mortgage is much higher than present interest rates, it’s time to look into refinancing.
Things to Consider When It Comes to Mortgage Refinance
Interest rates should be considered when it comes to refinancing. A new loan will have the interest to be paid over the course of it as well, and in some cases, it costs more than the old mortgage altogether. Loan extensions can bring this about; even with a lower rate, if the loan is being paid back for a longer time, more will get paid out in interest.
Length of Stay in the Property
Another key thing to consider is how long the house will actually be lived in prior to refinancing. If there’s a timeline for selling the house that’s coming up soon enough, then refinancing will not be beneficial. Lowering the rate might bring in savings, but they will end up used to offset closing costs anyway. So instead of helping with the transaction, the refinancing will simply lead to breaking even.
Aside from saving money on interest and the rate lowering, there are several other reasons for homeowners to refinance:
- Lower monthly payments
- Money saved on mortgage needed elsewhere
- Stop mortgage insurance premium payment (from refinancing a Federal Housing Administration/FHA loan to a conventional loan)
- Switch to a fixed rate from an adjustable one (interest won’t change)
The Refinance Process
Getting a new mortgage is vital for home refinancing. A homeowner’s present mortgage gets paid off to be replaced with a new mortgage whose terms or rates are better. The process goes as follows:
- Complete a new application
- Provide relevant documents
- Review and sign disclosures
- Pay for closing costs
- New mortgage closing
Paperwork and processing costs as a whole will depend on the kind of mortgage that’s chosen. Conventional loans require a process much like buying a house; it’s where the moniker “full document refinance” comes from. It comes with several advantages, such as no longer paying for PMI (private mortgage insurance) if the home equity is at least 20%.
Loans that are government-backed (FHA, VA/Veterans Affairs) may offer the option of a streamline program for home refinancing. Streamline refinance, as the name suggests, has far less paperwork involved, and the closing is much quicker. Credit terms are far more convenient as well, though there are still closing costs attached. It’s also important to look over the requirements and restrictions before making an effort to go about that route.
All that said, it’s crucial to meet certain requirements from a lender: financial, income, and credit. Only then will a refinance be approved.
Many people are understandably unsure as to when the best time to refinance their home is. Simply put, that’s usually when the current mortgage rate is much higher than interest rates at the time. Reasons for this include saving money on interest, the rate lowering, switching to a fixed rate, and lower monthly payments.
Need more information about refinances? Reach out to Primeline Capital today! Our licensed mortgage experts will help you compare multiple lenders to make shopping for a mortgage easy.