Many homeowners seek to refinance to have a new home loan with better or more favorable terms. You can decide to refinance a high-interest mortgage with a loan that has a lower interest rate, or you can also do so to reduce or lengthen your loan term.
Refinancing can lead to savings, but it’s important to know the risks and costs involved. Mortgage refinance experts from Altius Mortgage Group suggest doing your homework to find out if taking the plunge will pay off.
Just like when applying for your first mortgage, you’ll also need to pay a closing cost to be able to refinance. The average closing cost is 1.5%, but this will still depend on different factors like your credit score and loan type. Find out the closing cost first by comparing the fees and estimates from at least three lenders.
Extending the Loan Term
You can lower monthly payment by extending the term of the mortgage. Just take note that while this will cost you less at the moment, you’ll pay more total interest over the life of the loan. You need to take this into account if you’re thinking of extending your current mortgage term. In most cases, it’s best to refinance to shorten your loan term, as this translates to lower total interest rates.
If you’ve built up some home equity, you can borrow an additional amount (called cash-out refinancing) to pay off other debts like credit cards or auto loan. Just be sure to evaluate this type of refinancing carefully. Keep in mind that taking out a cash-out refinance to pay off or consolidate your debts can lead to financial problems, especially if you start racking up debts again.
Other Associated Fees
Apart from the closing costs, you’ll also have to prepare extra cash for a host of other fees such as house appraisal, loan application fee, loan origination fee, title insurance, and amortization. Ask your lenders about these fees to help you prepare for the total expenses involved.
Refinancing, when done for the right reasons, can be truly beneficial. If you think you’re ready to refinance, be sure to know what’s involved in the process and work with a reputable lender.