Getting Ready to Refinance
By Jase Stevens
Nov 4, 2018
Nov 4, 2018
Reasons to Refinance
The first step in deciding whether you should refinance is to figure out your goals. The most common reasons are listed below -
1) Take Cash Out
Refinancing your mortgage is a great way to use the equity you have in your home. With a cash-out refinance, you refinance for a higher loan amount than what you owe and pocket the difference. Any proceeds you receive are tax-free.
Many homeowners take advantage of that cash infusion to pay off high-interest credit card debt or even pay for an upcoming event (wedding for example). You can also take cash out to finance home improvements, education or whatever you need. Since mortgage interest rates are typically lower than interest rates on other debts, a cash-out refinance can be a great way to consolidate or pay off debt. *Additionally, mortgage interest is tax-deductible, but the interest on other debts usually isn't.
2) Get a Lower Payment
A lower monthly mortgage payment means more room in your budget for other things. There are a few ways you can lower your payment by refinancing.
Firstly, you may be able to refinance with a lower rate. If rates now are lower than they were when you bought your home, it's worth talking to your lender to see what your interest rate could be. Getting a lower rate means lowering the interest portion of your monthly payment – and big interest savings in the long run.
Secondly, you could refinance to get rid of mortgage insurance – a monthly fee you pay to protect your lender in the event that you default on the loan. Mortgage insurance is usually only required when you put down less than 20%. You could save hundreds of dollars a month by refinancing to stop paying monthly mortgage insurance.
How Long Should I Own My Home Before Refinancing?
In most cases, you'll need to be in your current home for at least a year before getting a significant financial benefit from refinancing.
Things You Need to Evaluate Before Refinancing
Once you have a clear goal in mind, you'll want to evaluate your financial situation. There are four keys things to look at: your credit score, your monthly mortgage payment, the value of your home and your debt-to-income ratio (DTI).
The first step in deciding whether you should refinance is to figure out your goals. The most common reasons are listed below -
1) Take Cash Out
Refinancing your mortgage is a great way to use the equity you have in your home. With a cash-out refinance, you refinance for a higher loan amount than what you owe and pocket the difference. Any proceeds you receive are tax-free.
Many homeowners take advantage of that cash infusion to pay off high-interest credit card debt or even pay for an upcoming event (wedding for example). You can also take cash out to finance home improvements, education or whatever you need. Since mortgage interest rates are typically lower than interest rates on other debts, a cash-out refinance can be a great way to consolidate or pay off debt. *Additionally, mortgage interest is tax-deductible, but the interest on other debts usually isn't.
2) Get a Lower Payment
A lower monthly mortgage payment means more room in your budget for other things. There are a few ways you can lower your payment by refinancing.
Firstly, you may be able to refinance with a lower rate. If rates now are lower than they were when you bought your home, it's worth talking to your lender to see what your interest rate could be. Getting a lower rate means lowering the interest portion of your monthly payment – and big interest savings in the long run.
Secondly, you could refinance to get rid of mortgage insurance – a monthly fee you pay to protect your lender in the event that you default on the loan. Mortgage insurance is usually only required when you put down less than 20%. You could save hundreds of dollars a month by refinancing to stop paying monthly mortgage insurance.
How Long Should I Own My Home Before Refinancing?
In most cases, you'll need to be in your current home for at least a year before getting a significant financial benefit from refinancing.
Things You Need to Evaluate Before Refinancing
Once you have a clear goal in mind, you'll want to evaluate your financial situation. There are four keys things to look at: your credit score, your monthly mortgage payment, the value of your home and your debt-to-income ratio (DTI).
- Your Credit Score
- Your Monthly Mortgage Payment
- The Value of Your Home
- Your Debt-to-Income Ratio