You have probably heard all the homeowners that you know buzzing about the record low interest rates that have come about due to the pandemic that has plowed through the nations across the world. It is one of the best times ever to refinance your current mortgage.
The benefits are plentiful, but the guidelines have become stricter, so even if you had no problems getting your original loan you may not qualify for a refinance. With that being said, lets go over a few circumstances in which you should refinance, as well as some that say no to one
Getting a Lower Interest Rate
One of the most common reasons that comes up to refinance your home is to get a lower interest rate. They are at a record low as this is being written, which was discussed above. It makes sense to take advantage of the situation while you can if you are in the position to do so. One thing that may hold you back from getting these decreased rates is your credit score. You will need a score in the high 700s to be able to get the best deals so if you need to work on that first, it would be a promising idea to do so.
Obtain Cash from Your Equity
We need to cover what equity is before we go into this topic. Your equity is the amount of value that you have when you take the current price of your house and subtract the amount of the loan that you still must pay. Most lenders will require that you have up to 20% left on the equity, even after the refinance loan. You will need to do some quick math to ensure that you have some equity built up, but a good rule of thumb that you can follow is that if you have been paying on your current loan for five or more years, you are golden. If you have equity built up, and want a payout on it, you can get a home loan refinance of up to the current value of the home. The refinance loan that you get will have to be used to pay off the previous loan, and pay all the closing costs, before any of it is released to you.
Reducing the Term of the Loan
This is another great reason to get a refinance loan. If your credit is good, your equity is high, and your income is stable, it would be a clever idea to refinance your loan in such a way as to decrease your term and your interest rates. In this way you will be able to continue paying the same amount, or maybe a little less, for a shorter length of time. For instance, you can go down from 20 years of payments down to 15 years, while keeping the same monthly payment.
Getting Out from Under a Government Sponsored Loan
If you did not have the best credit, or if you served in the military, you may have opted to get a loan through one of the government sponsored home loan programs that you would have qualified for. These can have high interest rates, and rules that you must follow. Getting a refinance loan from a normal lender will decrease your rates, improve your credit, and help you get out from underneath the government and its programs.
Refinancing is part of home ownership when you are dealing with mortgage loans. When you can make moves to improve your financial position you need to do so. Refinancing is one such way, as long as you are in the position to do it without it putting you farther into the hole.