Expand Your Horizons By Refinancing Your Mortgage
Oh, the things you can do
Your family has grown but your house hasn’t. You’d like to help your kids with their college expenses. You want to pay off your credit cards. It’s hard to find the extra money for renovations, education, and debt reduction, but the answer may be closer than you think. In fact, you may be sitting in it right now. If you own your home, refinancing may put your goals within reach.
Just what is a refinance, exactly?
A mortgage refinance is the replacement of your existing mortgage with a new loan that has different and potentially more favorable terms. So far it doesn’t sound very exciting, does it? Let’s explore further. There are different kinds of refinances to meet different goals. A refinance can be a way to save money on your home loan monthly or over the long term. It’s can be a way to transform the equity in your home into a liquid asset you can use to meet financial needs. It’s definitely a reward for your smart decision to buy a home rather than pay rent.
What a difference a rate makes
When you think of refinancing, the first thing that comes to mind is usually lowering your interest rate. It’s a good reason. A three-quarters or a half percent may not seem like much, but in the world of mortgages it can really add up. When you refi from a higher rate loan to a lower rate loan, you’re both improving your monthly cash flow and saving thousands of dollars over the life of your loan. Your licensed CrossCountry Mortgage loan officer can help you decide if the savings will be worth it.
You’ve got equity
Equity is the difference between the amount left on your mortgage and the current appraised value of your home. If you’ve owned your home for even a few years, it may have appreciated significantly, creating a source of funds you can access by refinancing. You can usually borrow up to 80% of your home’s value, although it may be less, depending on your debt-to-income ratio and your credit scores.
If you want to tap your home equity, make sure you’re taking the money for something important. Your home is the collateral for your mortgage, so it’s not something to risk on a stock market hunch or an expensive car that will lose value the minute you drive it off the dealer’s lot.
Refinancing beyond rate reduction
If you can benefit by reducing your loan rate, you should definitely consider a refi. But there are many more reasons why a refinance can make sense:
- Shortening the term of your mortgage (often from 30 years to 15 years) and potentially saving thousands of dollars in interest.
- Consolidating higher-interest consumer debt into one easy-to-manage, lower-rate loan.
- Changing from an adjustable-rate mortgage to a fixed-rate mortgage with stable monthly principal and interest payments.
- Consolidating multiple mortgages (on the same property, of course) into one mortgage.
- Renovating your home.
- Taking cash out for an important purpose, such as paying for education.
You may not need an appraisal
Certain refinance programs don’t require an appraisal, which can save you money up front. However, you may want to get one anyway. Why? You want to be sure that your home isn’t undervalued, especially if you plan to tap the equity. There’s a significant difference in what you could borrow at 80% loan-to-value if your home is valued at $300,000 instead of $350,000. It could affect the appliances you buy for your kitchen remodel or the amount you can set aside for your kids’ college tuition.
Ditch the MIP
Down payments on Federal Housing Administration (FHA) loans start at 3.5%, making them a great option if you don’t have a 20% down payment, but they come at the price of two kinds of mortgage insurance. You’ll pay an Upfront Mortgage Insurance Premium (UFMIP) at closing, and a monthly Mortgage Insurance Premium (MIP) for the life of the loan. The only way to remove the MIP is by refinancing to a new loan once you have equity of 20% or can put more money down.
You can see there’s a lot more to refinancing than rates. You have many choices and multiple ways in which a refinance may benefit you and your family. What’s your next step? Call or email your licensed CrossCountry Mortgage loan officer and discuss your options.