Most people purchase their homes with a mortgage. While the funding is meant to make it easier to afford big-ticket items and pay for them over an extended period, sometimes the loan conditions can become a big burden on your finances.
When it comes to the cost of borrowing money, timing is critical. The current economic situation determines the cost of borrowing money. When the economy is doing well, mortgage rates go up. In a downturn, the government will lower interest rates to encourage people to spend. If you are currently paying off your mortgage and rates take a dive, it is still possible for you to adjust your loan terms through refinancing.
Refinancing is an option that lending institutions offer to help you adjust the structure of your loan terms in case the market or your personal financial situation improves. You can reduce the amount you pay each month on your mortgage by either taking a lower interest rate or extending your loan repayment period. You can also refinance to tap into the equity that you have accumulated. If you want to know why you need to refinance, here are a few good reasons:
You want to lower your monthly payments
If you obtained a mortgage during a market upswing, you could restructure your loan when the rates go down. Although your bank will charge you fees to process the refinancing, you will get to reduce the cost of monthly amortizations and give you a little more leeway with your cash.
You need funds to renovate your home
You can tap into the equity you have accumulated by opting for cash-out refinancing. This option allows you to get a new home loan worth more than what you originally owe. The lender gives you the difference of the loan in cash, and you can use those funds to renovate your home or to pay off other debts. While this option gives you access to cash, it does come with higher interest rates, so your monthly cost on your principal loan will increase.
You are eligible to cancel mortgage insurance
Canceling insurance is one way to reduce your monthly costs. Once you have accumulated at least a 20% equity on your home’s value, you can cancel the insurance on your mortgage. Only private mortgage insurances are cancellable. If you took out a federal housing loan (FHA), you would need to get a loan from a private lender and convert your FHA loan to cancel the insurance.
You can pay off the loan in a shorter amount of time
If your income or savings increases during the first few years of paying back your mortgage, you can speed up the repayment period. To shorten the loan term, you can increase the amount you pay each month. It will cost you more, but if you have the extra cash, reducing your term means freeing yourself from the mortgage sooner rather than later.
You want a fixed versus an adjustable-rate
In recent months, mortgage rates are at a historic low. You can lock the low rates by replacing your adjustable-rate mortgage to a fixed-rate loan. Fixed loans mean that you can continue paying the same amount for an extended period even if the market improves and rates go up again.
The opportunity to refinance your mortgage can help you adjust your monthly costs and relocate them towards other things. You might want to free up the funds to invest in other big-ticket items. The best time to refinance is when it allows you to reduce your monthly costs or pay back the mortgage faster.
Check the market or consult an experienced mortgage broker so you know if and when to exercise your refinancing options. The process will involve processing costs, so you need to determine if you are getting a better deal in the long run, or if you are better off with the terms you currently have.
Do you need assistance with mortgage refinancing in Salt Lake City? We provide assistance to Veterans for mortgage applications and refinancing options. Visit our website to get rates or call us to find out how we can help you purchase a home.