Mortgage Note: Is it Time to Refinance Your Home?
Mortgage note: Is it time for you to refinance your home? Find out here whether or not you should be considering a mortgage refinance.
A typical home loan term is 30 years and interest rates can fluctuate with the market. A borrower may feel tremendous stress underneath a mortgage note.
Many people make payments on their home loans each month without asking whether a change needs to be made. We have no idea what turns our lives will take. The plan you have for you and your family may change each year.
This is why there are options if you want to change the conditions of a mortgage loan. Knowing what option is right for you is the first step. Refinancing your current loan could help change your financial future.
If you're unsure whether it's time to refinance your home, you need to speak to a mortgage lender. You also need to educate yourself on what options are available.
Reasons to Consider Refinancing a Mortgage Note
The two types of refinancing options are rate/term and cash-out refinances. A rate and term refinance lowers the monthly rate and changes the length of the loan term. In a cash-out refinance, the new loan is for a larger amount than the existing loan and the borrower receives the difference in cash.
The type of refinance option you choose depends on your situation. Making the decision between the two should be pretty clear. Asking yourself why you would choose to refinance is the first step.
Let's look at some of the primary reasons you should refinance your mortgage note.
Lower Interest Rate
One of the primary reasons people decide to refinance a mortgage note is to get a lower interest rate. A lower interest rate could significantly lower your monthly bill. 2017 has seen lower interest rates, so now may be a good time to consider refinancing.
As you become more financially stable and pay off debt, you increase your credit score. A better credit score will increase your chances of obtaining a loan with lower interest.
In the past, a borrower needed to reduce their loan by one percent in order to save money. Today home loan amounts are much higher than they used to be. As a result, even a small mortgage rate reduction will mean lower monthly payments.
Take advantage of tools like an online mortgage calculator to determine if you can get a lower rate. If you decide to move forward, you'll need to speak to an experienced mortgage lender.
Change the Term on Your Deed
Many mortgage notes are for 30 years. That may seem like a frightening amount of time to be under a loan. Refinancing a home loan can enable you to shorten the term of the loan. This will allow you to better plan for your future.
If you have been financially successful and are now able to take on larger monthly payments, you should consider refinancing. Shortening the term by making monthly payments will allow you to pay it off faster. Imagine paying off a 30 year loan in 15 years.
Many people who are planning for retirement or have children entering college may want to free themselves of their home mortgage debt. Refinancing the mortgage note in order to shorten the term is a great option.
On the other hand, if you need lower monthly payments you could refinance to increase the loan term. However, this could be a risky move. Extending the term will put you further away from owning the home.
Switch from an ARM to an FRM
Refinancing can provide an opportunity to convert an adjustable rate mortgage (ARM) to a fixed rate mortgage (FRM). This could allow you to secure a good interest rate for the duration of the loan term. Doing this will lock you into a lower monthly payment.
If your adjustable rate loan is going to readjust to a higher rate, you may try locking into a lower interest rate by refinancing. Your credit score will be a determining factor. If your credit score is high and you want to decrease your monthly payments, a fixed rate mortgage may be the perfect option for you.
Cash-Out Refinance
In a cash-out refinance, equity that has built up on your home is taken and added to the loan principal. The new mortgage loan is higher than the original and you receive the difference in cash. This option will allow you to use the money from the refinance for debt consolidation or other expenses.
This approach is not for everyone. Keep in mind that a cash-out refinance often comes with higher interest rates. It may also result in a longer loan term.
This type of refinance can also be used during a divorce. If one spouse wants to keep the home, a cash-out will allow the couple to split the home equity. The person remaining in the home will then be on the new mortgage note.
Eliminate FHA Insurance
If you have an FHA loan, you likely pay a Mortgage Insurance Premium (MIP) each month. If you put less than 10% down on an FHA loan after June of 2013, mortgage insurance must be in place for the entirety of the loan. But you may not want to pay for insurance each month for many years.
Refinancing can be a way out of these insurance premiums. In these cases, once 20% equity is achieved on the home, you can refinance to a new loan. The new loan should not require a Mortgage Insurance Premium and you will now be free of the monthly insurance payments on the new mortgage note.
Find an Experienced Kansas City Mortgage Lender
You need to consider your reason for refinancing before making any moves.
If you've decided that refinancing is a smart decision, you need to speak to a knowledgeable mortgage lender in your area. The Kansas City Mortgage Guy will look at your situation and provide the best options for you.
I provide personal care when dealing with your finances and value long-term relationships with my clients. Contact me to discuss your options.
AUTHOR BIO
Will Foster | First State Bank Mortgage Senior Loan Officer
I became a mortgage lender in 2010, right after the "bubble" popped, and the mortgage industry underwent an incredible transformation. This has given me a unique advantage in the fact that I have never known anything other than the highly-regulated world we now live in.
Throughout my years of experience, my primary goal has been to keep up with the constant changes in the industry so I can help my clients investigate all of their options and maximize savings. In addition, because I specialize in Conventional, FHA, USDA, Jumbo, portfolio, and VA refinances and purchases, I can help a wider variety of individuals, families, and investors identify and secure the right loan to best suit their future interests.
The mortgage process can be a little confusing and even overwhelming these days with all of the regulations. I guide my clients through the process from start to finish, and I try and make it as painless and hassle-free as possible.