There are many benefits to a mortgage refinance for your home. When you do this, it allows you to manage your resources in a way that fits with your current financial plans. Though there are plenty of articles online about mortgage plans, you must sift through disinformation to get to the useful posts. Here are some of the biggest myths surrounding this practice and the truth about each.
Myth #1: refinancing means resetting your loan term
It can be daunting having to start over, especially in terms of home loans. People pay a considerable amount of money upfront for a home, so it can be disheartening having to start this again despite the lower rate or access to cash.
However, you do not necessarily need to do this. Depending on the lender, you might not need to start your term over. More lenders are writing custom loans with unique terms. Today, it’s common to have 12- or 18-year loans instead of the traditional 10-, 15-, or 30-year options. When refinancing, make sure to ask if the lender offers longer, specialized terms, since these could save you thousands in long-term interest.
Myth #2: borrowing again means losing your equity
When you lower your interest rate, drop your mortgage insurance, or take on a shorter term, you will not touch your equity. This is one of the most pressing reasons people refinance today; they want to take advantage of the competitive rates while building their equity.
Larger equity will benefit you if you need access to resources or a new down payment on another home. Note that you won’t lose your equity if you refinance; it will only be affected if you add to the principal, which happens when you opt for cashing out.
Myth #3: short-term should not become long-term debt
Credit card rates are almost triple of mortgage rates, which quickly compounds. As such, if you only make minimum monthly payments on your credit card, it will take a while for you to get rid of your debt. When you have a mortgage refinance, it will help you pay things off quicker.
For instance, if you have an 18 percent annual rate on a $2,000 credit card balance, it will take you 370 months to pay everything off on the minimum two percent monthly payment. In contrast, a 30-year mortgage term is ten months shorter.
Consolidating your credit card debt into your mortgage and paying off the high-interest charges with your equity could help you if you’ve accumulated a lot of debt. Make sure you discuss your financial strategies with a mortgage broker who can identify the best refinancing option.
Myth #4: refinances should be few and far between
You could refinance your mortgage as early as six months after the previous one. People would do this for many reasons; perhaps they’re looking to leverage recently lowered rates or take a shorter term. In any case, consider your financial goals. How long do you intend to keep your current home, and are the changes worth the closing costs? Also, check if you will have payment penalties for refinancing your mortgage. Consult a broker who can give you a balanced assessment and advise you whether you should get a new plan or stick with your current one.
If you need a new interest rate, a different term, or even cash from your home equity, refinancing your mortgage is one way to go. Before signing a new loan, though, you should understand the realities of mortgage refinancing. Speak with a broker who can outline for you a reasonable plan forward.
Be one step closer to owning your dream home with Frontline Financial. We help veterans find the best mortgage rates in Salt Lake City, UT, and we also help families refinance their loans and achieve their financial goals. Get in touch with us today to learn more!