There are plenty of options when it comes to your individual financial strategy, but one choice you may not have considered is a mortgage refinance.
What is a mortgage refinance? It's simply replacing your current home loan with one that has better terms while enabling you to get the cash from the equity you've built in your home. Here's a closer look:
The process of refinancing your home loan begins with determining your goal, i.e., the reason for your mortgage refinance. In most cases, your goal will be to shorten your current loan term while lowering your interest rate.
Your next steps include learning your current credit score - the better your score, the better your refinance interest rate - and researching your home's current value. Once you have these numbers, you can begin shopping for the best mortgage rate while also calculating "all-in" costs such as application and appraisal fees, gathering necessary paperwork such as bank statements, and, finally, locking in your new rate.
Note: Refinancing your home loan is not the same as a second mortgage. While refinancing gives you an entirely new mortgage, a second mortgage gives you money from your home equity.
There are a variety of benefits to refinancing your mortgage, including lowering your interest rate, decreasing your payoff time, getting cash from your equity, consolidating debt, paying off credit cards, money to be used for home improvement, and more.
Lowering your home loan interest rate also means reducing your monthly house payment. A lower monthly payment can leave extra cash for a long list of things - including home improvements, investing into a retirement or education fund, "extras" such as new clothes, etc. Even an interest reduction rate of one-half percent can make a noticeable difference in your monthly payment.
Your mortgage refinance may involve shortening the term of your loan. Monthly payments will rise, but the interest you save over the life of the loan is significant. The extra money you pay for a shorter term enables you to build equity more quickly.
Money used from a cash-out refinance can be used to pay off bills such as credit cards. The interest you pay monthly may be tax deductible.
Interest rates are always fluctuating and many people use a mortgage refinance to switch from an adjustable rate mortgage to a fixed-rate mortgage in which the interest rate is locked in for the term of the loan. Fixed-rate 30- and 15-year loans are common, although other loan terms are available.
You may decide to refinance to access the equity you've built up in your home over the years. This money can be used to consolidate debts, retirement planning, home improvements, and more.
There are many benefits to a home refinance loan, and the professionals at the Sovereign Lending Group will help you find the refinancing option that best suits your needs.