Refinancing

Refinancing your mortgage can have a lot of benefits, but it’s not right for everybody. Discover the myths, the truths, and what you need to know before refinancing your home loan.

Buying a house requires a lot of effort; it is not an easy task! With all the work that goes into making sure your credit is where it needs to be, collecting all the necessary documentation, getting appraisals and inspections, and saving for a down payment, it’s amazing anyone gets a mortgage. Most of us don’t think about our mortgage again after we’ve closed it-other than making the monthly payment. However, did you know that you can get ahead financially with your home? It is not just essential for the future of your family to own a home, but it can also help you improve your quality of life as per the experts at The Mortgage Forum.

Refinancing in 2023

It doesn’t mean that the interest rate you qualified for when you first got your mortgage has to stay the same forever. As per The Mortgage Forum home loans mortgage experts, many homeowners, especially first-time buyers, have so much stress getting their finances organized and qualifying for a mortgage that, once they purchase, they do not want to go through this process again for a while. In the meantime, you may be in a better financial position after paying your mortgage for 5, 8, or 10 years and wonder if reworking your mortgage is possible.

Experts at Purcell Capital commercial mortgage lenders say you can reduce your loan term, save money, or align your finances with your goals.

The Myths

Mortgage rates have fallen this year, so many homeowners are refinancing their homes. There are some common misconceptions about refinancing that have been brought to light by the current refinancing frenzy. Here’s how we straighten things out, so you can build equity and lower your interest rate without worry.

Let’s first explain how a mortgage can be refinanced. You refinance your mortgage by replacing your existing loan with a new one. You may do this in order to change the terms of your loan-such as the interest rate or duration of financing-which, in turn, could lower your monthly payment or enable you to pay the loan off faster. Additionally, you can tap into the equity in your home to pay for home improvements or to consolidate other debts.

• In the past, if you were denied a refinance, you don’t stand a chance of being approved again. If you’ve previously been denied a refinance, this doesn’t mean the door is permanently shut. The requirements for equity and credit score are sometimes insufficient for some applicants. In recent years, however, many homeowners seem to be building equity more quickly. In addition, you may have experienced a significant increase in your credit score if you’ve worked on increasing it. Consequently, if either of these categories has improved since you last applied, you should consider applying again!
• Costs associated with closing are high. Your lender, the current value of your property, and the amount of your loan may not require you to cover any closing costs. In a nutshell, you can roll your closing costs into your new mortgage loan, which you can then pay back through monthly payments. Another possibility is to offer a lender credit in exchange for a slightly higher rate. If you are considering these options, discuss how they would affect your mortgage loan with your lender.
• In order to refinance, you must have at least 20% equity in your home. It is a recommendation, not a rule, to refinance with at least 20% equity. If your home has less than 20% equity, you’ll typically need mortgage insurance, but you can still refinance. Make sure you do the math and confirm you’ll still save money over the life of the loan despite including mortgage insurance.
• There isn’t much to save by refinancing. Refinancing can save you a significant amount of interest depending on the change in interest rates. If you lower your interest rate even by half a point, you can save tens of thousands of dollars over the life of your loan. Check out our refinance calculator to see how much you can save.
• The interest rates offered by all lenders are the same. Experts recommend comparing mortgages and other loans when purchasing a home. If you do so, you not only have a chance to get a lower interest rate, but also have control over what terms are best for you.
• Understanding the process requires expertise. A lot of people think that they need to know everything about the mortgage process before refinancing. While it may be helpful to refresh your memory before you meet with a lender, don’t allow your lack of knowledge to prevent you from achieving your financial goals. Ask any questions you might have, and feel free to reach out to a financial advisor.

The Cons

Your bank accounts may be drained if you have to pay off your mortgage. That is a very risky move. Before paying off your mortgage, experts recommend that you tackle a few other things first. Start by establishing a small emergency fund that you could live off of for one to three months in case you lost your job or needed to take a leave of absence. After that, pay off your remaining debts. You should pay off all your student loans, your car and all your credit cards. Next, you should begin saving for retirement. Then you should save for an emergency fund that will last you for a minimum of six months.

Consider other large purchases after you have addressed these items. Are you planning a wedding, paying for college, or buying a car? You should also consider these future expenses. Focus on your mortgage after that. A similar loss of liquidity can be experienced by investing all your cash in one house. A few extra mortgage payments a year can put a heavy strain on a homeowner’s finances. While real estate tends to be regarded as a safe investment, there are still risks involved.

Sell your stocks if you need money fast if you are strapped for cash, for example. The money you invest in a home is harder to access-you would need to sell the property or take out a home equity loan to do so. When deciding to pay off your mortgage early, and with the help of a trusted advisor, determine whether other investments could potentially earn you more money.

Mortgage interest is one of the largest and most common tax deductions that they take. In the event that you eliminate your mortgage, your annual filings will likely undergo an unexpected change. When considering paying off your mortgage, speak with a tax professional. In some cases, it may be difficult to pay off a mortgage early due to prepayment penalties. Some companies allow you to make payments in full only after a certain period of time has passed, while others could impose hefty fines for early payments. Prior to making a decision, go over your mortgage paperwork thoroughly. Which way do you lean? When paying off your mortgage, is it better to do so early or wait until the end? The decision is ultimately yours. Your age, financial situation, the economy, where you live, and other factors can influence how much weight you give to advantages and disadvantages.