If you’ve heard about home loan refinancing, you may have an idea of why so many people across the U.S are making the most of a new mortgage deal. Essentially when you refinance, you are replacing your old loan with a new one – which can often come with a number of bonuses. However, before you decide to go ahead and replace your current home loan, it might be a wise idea to find out more about doing so and if it’s the right decision for you.
Benefits of refinancing your home loan
There are often several advantages that can come with a home refinance, including:
Reducing your monthly repayments
In most cases, by replacing your home loan, you’ll be able to lower the monthly rates that you currently pay. One study shows that the average homeowner could save around $160 a month by refinancing – which isn’t a figure to overlook.
Lowering your interest rates
Often, you’ll also be able to get a reduced interest rate on your mortgage too – which can often contribute to lessening your monthly payments even further.
Switching to a different type of rate
As well as saving cash, you could also make your loan more manageable by choosing a different kind of rate for your mortgage, too. For example, if you have an adjustable rate, you might want to switch to a fixed one instead.
Adjusting your mortgage’s length
If you would rather have longer or shorter loan term, then refinancing can often be a good idea. Whether you want to reduce your monthly payments by extending your mortgage, or shorten it to pay off your loan faster and enjoy a lower interest rate; refinancing your current mortgage can often help.
Removing your loan’s PMI
If you’re currently paying for private mortgage insurance, commonly known as PMI, you may be able to remove this additional cost by refinancing. If you have enough principal paid off or property appreciation, there’s a good chance you’ll be able to forego this payment altogether.
Disadvantages of refinancing your home
Just as there are numerous benefits that can come with refinancing a home, there can sometimes be downsides to replacing your current mortgage, too. A few of the most common disadvantages are:
Low credit score issues
If you have a bad credit score, a lender will generally be less likely to approve your application for a home refinance. On top of this, if you do get approved, your bad credit is likely to mean a higher interest rate – which could be more than you’re currently paying.
Fees of refinancing
There are often a number of different costs that can come with refinancing your mortgage; from the closing fees, to the costs of getting an appraisal. All together you could be looking to pay thousands, just to get a replacement home loan. In addition, if you sell in a few years’ time, you may not have recovered the amount spent on these fees.
Often, it can be quite time consuming to research different lenders, pick the right kind of mortgage, to sign all of the necessary paperwork, and everything else that can be involved with the process of refinancing.
Different ways to change your home loan
If you feel that refinancing your home is still the right decision, you may want to find out more about the different options that are available to you. Aside from the options you’ll have when it comes to choosing your rates and term, you’ll generally be able to pick which kind of refinance deal is right for you, too. Some of these include:
- Rate and term (the most basic form of refinancing)
- No appraisal (best for those who can’t get a new loan with their appraisal)
- Cash out (turns equity into cash – good for those who want a lump sum of money to enjoy)
- Cash in (you lower your mortgage balance and the interest rates by paying cash when you refinance your loan)