Many of us hear the term “refinancing,” but few actually know what it entails. When doing anything pertaining to your home — and mortgage — you need to have as much information as possible to make the best, most informed decisions. After all, a home is where many people have the most equity. In today’s blog, Family Home Loan Texas discusses the basics of refinancing and why it can be the best move for you to make.
What Is Refinancing?
It is essentially when you revise and update the terms of your mortgage. When you decide to refinance it is to lower your fixed interest rate, to change the duration of your mortgage, or to switch from a fixed interest rate to an adjustable-rate mortgage. Various environmental factors can lead to this being possible as well as the smart move financially. It is most commonly done when interests rates go down, so you can take advantage of the drop.
Why You Should Refinance
The main purpose for doing this is to lower your interest rate — leading to you paying less money on your mortgage each month. It is most often recommended when your rate can drop around 2%. It should be noted, however, that to refinance your loan, you’ll need to pay between 3-6% of your mortgage’s principal. You will also have to pay for a new appraisal, title search, and application fees. Because of this, you’ll need to carefully assess your financial situation to make sure it is a wise move.
More Beneficial Reasons
In addition to securing a lower interest rate, you can take this opportunity to change the terms of your mortgage. If interests rates drop, you can pay roughly the same amount each month but pay off your loan much quicker — this often means turning a 30-year mortgage into a 15 year one. You might have to spend slightly more every month, but finishing your loan in significantly less time could be worth it to you. This isn’t always the best decision — you might have to pay more than you’re comfortable with every month — so run the numbers to see if it makes sense.
Additionally, refinancing can allow you to switch from a fixed-rate mortgage to an adjustable-rate mortgage (ARM) or vice versa. You might pay more each month with a fixed-rate mortgage, to begin with, but over time, if interest rates rise, an ARM may end up costing more. If this is the case, and you do have an ARM, switching to a fixed-rate mortgage could be a better option. On the other hand, if you have a fixed-rate mortgage, and interest rates are consistently dropping switching to an ARM could be the right move.
Overall, if you are considering refinancing your mortgage, you will need to look through your finances thoroughly to make sure the process is worth your while. You need to do whatever is best for you.
Contact Us To Learn More About Refinancing
Contact us for help with all of your refinancing needs. Family Home Loan Texas was founded by loan originator and long-time mortgage professional Rob Bramer. Rob has helped clients secure the loans they need both locally and nationally and can help you get the loan you need to live life on your terms. Call 1-800-990-LEND (5363) to speak with Rob about your home loan needs, including refinancing and reverse mortgage loans.