Refinancing your home loan can help in several ways. But before you try to refinance you need to consider time frames. There are some companies that will not require any time since you first got the home loan, but most will want to make sure that you can make payments.
Six months of payments is usually the rule before a lender will offer you an option to refinance. Check with your chosen lender before even trying to get refinanced. Once you have met their requirements it is time to go for it. Get refinanced for your mortgage for the following reasons.
- Lower Interest-You can get a lower interest rate, which will decrease your monthly payment that is due. You will save a substantial amount of money by doing this. Just keep in mind that lenders are not all the same. Take the time to use an online comparison site, such as iSelect, and get the best offer. Just make sure that you read the entire offer, even the small print. It may not actually benefit you once you read all the stipulations and charges, so be sure before signing a new contract that it is a good move for you.
- Pay Off-You will be able to pay your loan off faster. Since the payments are less you will be able to make extra payments on the loan, or you can opt to have the new loan be for a shorter length of time. Either way is beneficial for you because the sooner that the debt is paid off, the faster you will be out from under the payment.
- Fixed Interest Rates-If you first loan was a variable rate loan, you may have noticed that the interest rates went up and down, following the market values. When you check into a home loan refinance option you should try and get one that has a locked rate. This may be a little higher at first, but as the market surges forward you will end up having a lower rate than if you continued letting it flow with the fluctuations in the market.
- Equity-This is the amount that your property is worth, minus any liens that you have on the property. In other words, the equity is what the value of your house is in the current market, minus that amount of the loan that you have left. Refinancing can lower the amount that you still owe on the home, which will increase your equity. The higher that your equity is, the more likely you are to get a great new interest rate.
- Cash Out-Now that you understand what your equity is, you can consider doing a cash-out refinance option which will pay your current loan off and give you the rest of the value of your home. Based upon the current market value. To make this easier to understand we will take an easy example of it. Let us say that your home is worth $300k, and you have $150k left to pay on it. You can get a refinance loan for the full $300k, with the first $150k going to pay the original loan off, and then the rest going into your pocket so you can make some repairs or remodels to your home. Take note that when you do this, the amount that you owe will go back up, but if you did your homework, it will be with a lower interest rate.
- Credit Score-Paying on your loan in regular payments can increase your credit score, which in turn could lower the interest rates that you can be eligible for. You should already be aware of how your credit score works, if not you should do some research and get informed. The bottom line is that as your score goes up, your options will increase. You will be a better risk, according to the numbers, so lenders will offer you better loans with better rates, which is where a refinance loan comes in. It will use your current score to evaluate your loan, and it will help you continue increasing your credit score.
The bottom line is that buying a house is a big move that will affect your life for many years to come. It is imperative that you take advantage of everything that you can. Refinancing is one of those things that you can use to your advantage. It is always a promising idea to decrease your payments when possible. And the lower that your interest rates are, the less money you are spending that is not going to the principal amount.
This also increases the equity of your home, giving you a higher overall net worth. It is an aspect of life that we all deal with, so it is something that you need to take advantage of, when the opportunity arises.