Refinancing a home is a great way to put extra money in your pocket or pay for additional, unexpected expenses. One of the great benefits of home ownership is the ability to withdraw cash from the equity of your property when you need it the most.
Refinancing a home should not be taken lightly. Careful consideration should be paid into determining if you can repay the refinance loan, if the need for the money outweighs the additional debt payment you’ll add every month, and decide if you’ll be in the home on a long term basis.
The Basics of a Home Refinance Loan
A home refinance loan is similar to a regular mortgage. Consumers may notice many of the same fees associated with closing the loan, much of the same paperwork, and more.
When you refinance your home, your taking out a new mortgage and combining it with the current mortgage. If there is money left over from the new loan after the current mortgage is paid off, that money is paid to the borrower. Many homeowners take out home refinance loans because they’ve realized their credit has improved significantly since taking out the old loan, and they want to take advantage of a lower interest rate.
One of the other key benefits of refinancing a home is that borrowers might actually get to choose if they want to extend the term of their mortgage or reduce the repayment term (from a 30 year to a 15 year mortgage, for example). Doing this will depend on how much your home is currently worth and how many years are left on your current mortgage.
When is it Time to Refinance a Home?
There are a number of different instances when it would be wise to refinance your home.
If the economy is unstable and your interest rates continue to climb, refinancing your home might lower your monthly payment. Consumers can also switch from one type of mortgage to another if they feel it would be better for them.
Other reasons that would make it a good time to refinance a home is paying for home renovations or a child’s college tuition. When you refinance for these reasons, you’ll take out what is known as cash-out refinancing, and involves borrowing money from the equity you currently have in your home when the value of your home is greater than the amount you owe on your current mortgage. Any additional funds left over after you’ve paid off your current mortgage will go directly to you.
Knowing whether or not it’s a good time to refinance a home is tricky. Do some research on the current market climate, find out how much your home is worth and consult with a mortgage broker before applying for a home refinance loan.