Tips on Refinancing your Home
Refinancing your mortgage will pay off your existing home loan and replace it with a new one. Potential benefits may include receiving more favorable terms, like a lower interest rate or lower monthly payments. Refinancing could also let you tap into the home’s equity to take cash out for home improvements. The following refinance tips could significantly help you:
How to Qualify
To qualify for refinancing, you will likely go through an approval process similar to what was needed for your original loan. Three factors weigh heavily in this process: (1) your credit score, (2) your income, and (3) whether there is sufficient equity in your home.
In general, the higher your credit score and income, the better the terms will be available to you. If your financial situation has changed considerably since your original loan, you may still be able to qualify for government-sponsored loan programs available for those with less-than-ideal credit or income.
Understand the Rates and Terms
In considering a mortgage refinance, it’s essential to know what interest rates, monthly payments, and loan terms may be available to you. The Federal Reserve periodically adjusts federal loan interest rates to stimulate or slow down the economy, and being familiar with rate trends is crucial when you’re looking to refinance your home loan. Shortening your loan’s term may mean you could pay it off sooner and be able to enjoy your home debt-free. A half of a percent difference in your rate could mean thousands of dollars in savings over the life of your loan. Shortening your loan’s term may mean you could pay it off sooner and be able to enjoy your home debt-free.
Consider Cash-Out Opportunities
A cash-out refinance allows you to take funds from your home’s built-up equity (the difference between your home’s current market value and the mortgage balance remaining). You could use this cash for any purpose, including paying off high-interest credit card debt. If you use it for home improvements, you could even build equity right back into your property with renovations that increase its appraised value.
Refinancing can be a great financial move if it reduces your mortgage payment, shortens the term of your loan, or helps you build equity more quickly. When implemented carefully, it may also be a valuable tool for bringing debt under control.
