Refinancing may be a great solution to decrease your monthly mortgage expense. Refinancing is paying off your current home loan and taking out a new loan with new terms. This is done when the new terms and rate is more favorable compared to your current terms and rate. Before you decide to refinance, you should consider every factor to make sure refinancing is the solution for you.
What are the benefits of refinancing?
Why should I refinance my home?
What should I consider before refinancing my home?
Do I have to stay with my current lender when doing a refinance?
What components affect my loan approval?
Increase Your Cash Flow. Refinancing to a lower interest rate typically results in a lower monthly payment. A lower monthly payment will allow you to have more available funds to use as you please.
Choose a Different Mortgage Option. As time goes by, our needs and wants constantly change. By refinancing, you have the ability to select a mortgage option that will best benefit you at this time in your life.
Turn Your Equity into Cash. By refinancing, you are able to take out a new mortgage with a greater principal, which allows you to turn some of your home’s equity into cash. This is called Cash-out Refinancing. Because your mortgage is a secured loan, you are able to get a lower interest rate compared to a non-secured financial instrument such as a credit card.
Here are the most common reasons for refinancing:
Interest Rates Have Dropped. If your current loan is a fixed-rate mortgage and interest rates have dropped, refinancing may result in a significantly lower monthly payment.
Building Your Home Equity Faster. If you can afford a higher payment since receiving your current loan, you may want to consider refinancing to lower the term of the loan. Reducing the term of the loan will make your monthly payments higher, meaning you will build your home equity faster. You will also save money in the long run by paying less in interest overtime.
To Reduce Your Monthly Payments. You may find yourself struggling to keep up with your current monthly payment. Refinancing will enable you to increase the term of the loan, which will lower your monthly payment. This increase in the loan’s term will result in you paying more in interest overtime, but it will aid you in being able to comfortably afford your monthly payment.
Length of Time You Plan on Staying in Your Home. Refinancing usually does not result in immediate savings but instead, is a gradual process over time. If you plan on staying in your home for a short period of time, refinancing may not be the solution for you. Typically, the longer you stay in your home, the more sense it makes to refinance.
Prepayment Penalty for Your Current Home Loan. A prepayment penalty is a penalty that is charged if you pay off your loan before a certain point in the term. Prepayment penalties do not apply to all home loans. You should consult your current lending institution for more information if this penalty applies to your current mortgage.
Cost of Refinancing. Refinancing is the process of paying off your current mortgage in order to take out a new home loan. Just as when you received your current mortgage, you will also have to pay the associated costs for the new refinanced mortgage. These costs include but are not limited to application, appraisal, origination and insurance fees.
Break-even Point. The break-even point is the point when your savings from the refinanced loan equals the cost of obtaining the new loan.
Ideally, you want the savings to be higher than the cost to make the refinance worthwhile. Access our “Time to Refinance?” Calculator to determine your break-even point.
Reduction of Tax Savings. As a homeowner, you have the ability to write-off the interest paid annually on your home. When refinancing to lower your interest rate, you will have a lower annual interest amount to deduct from your taxes. This might result in a decrease of the total savings you might have anticipated with refinancing. Consult an expert to see how refinancing will affect your tax deduction.
No! You do not have to stay with the lender that provided you with your original mortgage. Instead, you have the option of shopping around for the best mortgage rate and fees. When you contact different lending institutions, make sure to ask for an Annual Percentage Rate (APR). The APR allows you to see the true cost of borrowing and helps you compare one mortgage against another.
At Ameris Bank, we take the time to carefully consider each loan application submitted. Here are some components that we take into consideration when determining a loan approval:
Income. As a lender, we want to have full assurance that you can pay your monthly mortgage payment. Your income shows that you have a reliable, continuing source of funds.
Current Debt and Credit. Your current debt and credit history show your payment habits. Do you make your monthly payments? Do you pay these bills on time? These are the type of questions asked because they show the likelihood of you paying your monthly mortgage payment. Learn more about the Importance of a Credit Score.
Available Funds. As a lender, we want to be assured that you have additional funds available for paying the down payment and closing costs for your new home. Sometimes a lender might also want you to have enough available funds for making the first couple of monthly mortgage, insurance and tax payments.
The Property. Typically, you will be asked to provide a home appraisal of the house you would like to refinance. The home appraisal shows the market value of the house.