Refinancing: Six Things Every Homeowner Should Know
So what exactly is a refinance? Refinancing your mortgage basically means that you find a new lender to pay off your current mortgage lender. After you close your refinance your new payments will be based on the new rate and term you agreed to. Here are five things every homeowner should understand about refinancing:
1. Refinancing Can Save You Thousands Per Year
Many homebuyers get excited about refinancing because they can save hundreds of dollars on their monthly mortgage payment. What most homeowners don’t think about is the fact that you’ll save thousands of dollars each year on interest too!
The less you pay in interest monthly means more of your monthly payment is applied to principal...This allows you to build equity quicker and equity creates wealth!
2. You Can Refinance To Make Home Improvements
Some homeowners have a dream renovation project that they’d love to complete on their house, but they don’t have the funds on hand. With a Renovation Loan, you can essentially refinance your mortgage based on what the future value of your home would be after the renovation.
Your new monthly payment includes your regular mortgage and includes the cost of the actual renovation, so you can pay it off over time! This could include everything from a major kitchen renovation to an expansion on your house.
3. You Can Consolidate Other Debts With a Mortgage Refinance
Another overlooked benefit of refinancing is that you can consolidate other debts into your new mortgage payment at that new low rate! For instance, you could borrow $300,000 for your house at 2.75%, and borrow another $50,000 to put towards your student debt. That means your $50,000 student debt would now have a 2.75% interest rate, and it would be folded into your monthly mortgage payment!
You could do the same consolidation with your car payments, credit cards, and other forms of debt.
Here’s a powerful example from a client we recently helped. Their mortgage payment was $3,075, and their monthly debt payments were $2,725 for a monthly total of $5,800. After the refinancing, their mortgage payment is now $3,127, and their monthly debt payment is $0, which means they’re saving $2,673 per month. By applying that extra money to their monthly mortgage payment, they could pay off their new mortgage in less than 13 years (their previous loan had 25 years left).
4. Refinances Can Close In As Little As 30 Days
You’ve probably heard horror stories of people waiting 60-90 days for a refinance to close. Depending on who you work with, you can complete a refinance in as little as 30 days. It really all depends on how fast you can gather and deliver the necessary paperwork, and how fast your mortgage company can process it. In our case, refinances can easily be over and done within a month’s time.
5. Refinancing Does Not Wreck Your Credit
Some homeowners don’t refinance because they think it’ll look bad for the credit companies. Any new debt will cause some fluctuation in your credit score (like your first mortgage did), but the credit companies do NOT see refinancing as a sign of financial hardship. We’re also able to pull preliminary numbers for our clients without putting a ding on their credit.
6. Closing Costs Can Be Financed
Many homeowners believe that closing costs have to be paid out of pocket. Closing costs can be included in your new loan. You can refinance in some cases with no out of pocket expenses at all.
