3 Tips For Successfully Refinancing Your Home
For most people, the purchase of a home will be one of the most expensive investments they will make. The repayment of a mortgage loan can take many years. A lot of things can change during the time that you have your mortgage. Refinancing your home can be a great way to take advantage of the benefits a new mortgage might provide.
Follow these three tips and you will be well on your way to successfully refinancing your home.
1. Calculate the amount of equity in your home.
Equity refers to the difference between the balance you owe on your mortgage and the actual value of your home. This number plays a critical role in the refinancing process. In order to be eligible for refinancing programs, homeowners must usually owe no more than 80% of their home's value.
This means that if your equity is less than 20%, you may not be able to refinance your property. You can explore a cash-in refinance which requires you to pay a lump sum when closing on your refinanced loan to bring your equity within acceptable parameters.
2. Check current interest rates.
One of the major benefits that you can enjoy when opting to refinance your home is a reduction in the interest rate you pay for your loan. In order to determine if it's worth going through the refinancing process, you need to check current interest rates being offered for refinanced mortgages.
Your bank or lending company will be able to use your specific financial and credit information to provide you with an expected interest rate. Ensure that the new rate will be lower than your existing rate if you want to save money through the refinancing of your home.
3. Check your mortgage agreement to see if penalties will apply.
Some mortgage companies charge their customers a penalty fee for paying off the balance of the original mortgage loan with the proceeds from a home equity loan. Before you refinance your property, you should comb through your mortgage agreement to see if this penalty provision applies to you.
You will need to factor the cost of the associated penalties and fees into your refinanced loan to avoid unexpected financial burdens once the refinancing of your home is complete.
Refinancing your home can be a great way to reduce your monthly payments, reduce the size of your mortgage, and lower your interest rate. Knowing your equity value, potential interest rate, and the amount of any penalties or fees before refinancing will help ensure your new loan is successful.