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Is it Smart to Refinance?

Your home mortgage is an important investment in your future, and a mortgage refinance can be a smart move to help you manage your investments when used under the right circumstances. Here are some things to consider about refinancing your mortgage.  

Simply put, when you refinance your mortgage, you are taking out a new loan to pay off your original mortgage, so the first question to ask yourself may be is there a better product available to you than what you started with?

Refinancing allows you to borrow against the equity you have built up in your home and take out cash you can use to pay off other debt, make home improvements, or invest in your retirement. For example, let’s say you have $70,000 of equity in your home, but still owe $175,000 on your mortgage. You may take out a new mortgage for $200,000 that is used to pay off the first mortgage, and then pays you $25,000 in cash. If you have made regular payments on your initial mortgage for at least five years, you probably have enough equity built up to take a cash-out mortgage.

Another reason to refinance is to reduce your monthly payment to give you more flexibility in your monthly budget. When you refinance, you are basically starting over on your 30-year commitment, but, if you are not taking cash out, your new mortgage amount will be lower, so your payments decrease.  

If you originally took out a 15-year mortgage, changing to a 30-year term will lower your monthly payment considerably.  

You may also choose the opposite and switch from a 30-year loan to a 15-year term. Your monthly payments will likely increase, but you will pay your loan off earlier and pay less interest.  

Another reason people refinance is to change from an adjustable-rate mortgage (ARM) to a fixed-rate. This eliminates fluctuations in your monthly mortgage payment and may help you take advantage of favorable rates.  

Before you decide to refinance, do some homework. You should perform an audit of your monthly budget, assess your short and long-term financial goals, check your credit score, watch interest rate fluctuations, and consider the costs involved in refinancing ads there will be closing costs on your new loan.

When Should I Refinance?

Low-interest rates have many homeowners wondering if it’s a good time to refinance. Refinancing can save you a lot of money in the long term when done correctly. It’s important to consider the drawbacks as well. Here are some reasons why you might want to refinance, and a few things to be cautious of.

Reasons you may want to refinance:

1. To lower your monthly payment. If today’s interest rates are lower than when you purchased your home, refinancing to a lower rate will reduce your monthly payment down, freeing up cash to help with other bills, your children’s education, or to save towards retirement.

2. To pay off your mortgage earlier. A great way to use the money you save with a lower mortgage payment is to apply it right to your principle, which will help you pay your loan off earlier.

3. To take advantage of a better credit score. If your credit score has increased significantly since you bought your home, you may get a better loan if you refinance.

4. To save on total interest. For some, the desire to pay less interest overall makes refinancing an attractive option. Reducing the interest rate and/or the loan term will save you money long term.

5. To change loan types. If you have an adjustable-rate mortgage that has been increasing or is nearing the end of the fixed period, you may want to switch to a fixed-rate mortgage.

If you have extra cash on hand to make larger monthly payments, it may make sense to change to a 15-year mortgage so you can pay it off earlier.

6. To consolidate debt or take cash out. If you have built up equity in your home, you may be able to borrow against your home to obtain cash to pay off higher-interest debt, to make improvements on your home, or for things like your children’s education or medical expenses.

If you think that refinancing is the best option for you, I have several lender partners that will take great care of you. Reach out to me and I’ll send you their info!

5 Questions to Ask Potential Mortgage Lenders

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As you embark on the dynamic journey of buying a new home, it’s crucial to navigate the intricate landscape of mortgages with confidence. I’m Liz Opatic, a committed real estate professional specializing in the vibrant Grand Rapids community. In the following discussion, we’ll delve into the pivotal questions you should contemplate when engaging potential mortgage lenders.

1. What type of loan do you recommend for me? Why?

In the realm of mortgages, one size rarely fits all. It’s crucial to understand the nuances of each mortgage type and how they align with your goals. Delve into the rationale behind the lender’s recommendation – this insight empowers you to make an informed decision tailored to your unique needs.

2. Will my down payment vary based on the loan I choose?

Being smart about your finances is super important. So, don’t hold back when it comes to letting your lender know about your money limits. Mortgages have all sorts of different down payment needs. By sharing your preferences, you’re setting the stage for a balanced approach that keeps your financial comfort in mind.

    3. What is the interest rate and the annual percentage rate (APR)?

    While interest rates take the spotlight, the Annual Percentage Rate (APR) offers a comprehensive view. It merges the interest rate with fees, providing a holistic understanding of your borrowing costs. Grasping the APR aids in making accurate comparisons among loan offers.

    4. When can I lock in my interest rate?

    Asking your lender how soon you can lock in your interest rate is a strategic move that can save you money. Interest rates can be like a moving target, and they often fluctuate with market changes. By finding out the earliest possible moment to lock in your rate, you’re giving yourself a chance to secure a favorable rate before it potentially goes up. This can translate into significant savings over the life of your loan. So, don’t miss out on the opportunity to potentially lock in a lower rate – it’s all about maximizing your financial advantage in the home-buying process.

    5. What will my closing costs be?

    When it comes to closing costs, it’s crucial to have a clear understanding of what to expect. Typically ranging from 3-6% of your loan value, these costs encompass various fees associated with finalizing your home purchase.

    If you are looking for a great mortgage pro, I have several loan officers that will take amazing care of you. Call me today!

    Liz