Reasons for Home refinancing
Home refinancing works out an apt option for most homeowners but it is not a fashion trend to be followed without understanding what this is and when is the right time to opt for home financing. Home refinancing means opting for a new loan from another lender to pay off the one you had originally taken the loan from. The two prime reasons for opting for this refinancing are to ensure you get to pay a lower interest rate and avail a top-up of the original loan.
Reasons for opting for Home Refinancing:
Considering the reasons listed below can help you determine if home refinancing is the ‘right’ option for you.
1. Drop the insurance payments of the Mortgage:
Those who have borrowed with FHA and mortgages which are termed as ‘conventional’ most often need to pay mortgage insurance when they are unable to put down payments considered ‘large’. This insurance will only add to the cost of the taken loan. It is advisable to ensure you can finish off with this loan. One sure way to do away with the MIP is to opt for a new mortgage which is not connected to the FHA. Getting rid of the MIP can lead to great savings in the future.
2. Reduction in Rates of Interest:
Make an effort to go through the rates of interest on home refinances. There is a possibility of you qualifying for the reduction in the rate of interest. There are more chances of better interest rates if the credit score has improved with the passing of time. There is also a chance of finding better rates for borrowers due to the market rates changing.
3. Reduction in time to pay-off Loan:
For those looking to build home equity fast it is advisable to opt for a mortgage of 20 years, 15 years or even 10 years, that is, if the original mortgage is of 30 years. The borrower can pay off the loan sooner though they might have to pay higher installments in the monthly payments.
4. Retirement preparation:
It is wiser to opt for home refinancing if you have a short time to retire. Lenders are more lenient with those who have some time for their retirement.
5. Cash-out Refinance:
Cash-out refinance is borrowing more that you owe at present based on the appreciation of the home. With home refinancing you can finance almost 97% of the home value. The lender offers you cash payment if you opt for refinance your home for more than you owe. This cash can be used for your requirement.
Types of Home Refinancing:
You have the choice of opting for a different type of home refinancing even if you are currently on the mortgage of fixed rate. Listed below are some type of home refinancing loans you can opt for.
*Option ARM Mortgage
*Interest only Mortgage
Before planning to switch over ensure you go through the terms and conditions of the loan you have chosen. You can even seek professional help in case of any confusion.