What Is Refinancing?
When you purchase a home you most likely took out a mortgage to buy a home. If you choose to get a new mortgage to replace the first one, that is called refinancing. If you’re credit is in good shape, refinancing can save you some money by adjusting your interest rate from a variable to a fixed rate mortgage, and allow you to maintain the same payment until you pay off the loan.
Reasons to Refinance
The first reason people consider refinancing a home is to get a lower interest rate. Mortgage rates for conventional loans are low thanks to strong backing by two of the world’s largest lending agencies. Some people purchase their home when they aren’t as financially stable as they could be which means they will have a higher interest rate. Others may purchase the home with a decent interest rate, but keep an eye on the market so they refinance to get an even better rate after they own the home for some amount of time. As your income increases, you might work harder on your credit, and that means you could receive a lower interest rate, so you can save more money per year that could be used to renovate your home or simply pay down the loan earlier than planned.
Another reason people choose to refinance is because they want to use the equity in their home for a major purchase like a car or new roof. In order to do this, a homeowner would find out the value of their home, then the lender decides what they think is an appropriate amount of equity that can be borrowed. Then, the balance owed is subtracted, after that the original mortgage is paid and the owner gets the rest as a loan.
If you purchased your home with cash, you can refinance to pay yourself back. The delayed financing rule means you can make a fast purchase for a foreclosure for example, without using all cash reserves. Before this rule came about, investors had to wait six months to cash out on a home that was just purchased. This rules takes away that waiting period as long as certain rules are followed.
If you think refinancing might be a good idea for you, you’ll want to be sure you’ve looked over your budget to ensure you can cover the costs of the payments as well as how you will be using the loan. If you will be using the equity to increase your home value, you’ll have more revenue if you were to sell your home. But if you are using the equity for something like a car or pay off student loans, you’ll want to be very detailed with your financial plan moving forward.
Reach Out Today!
If you are considering refinancing and aren’t sure if it’s the best choice for your situation, don’t hesitate to contact us Family First Mortgage in Lafayette, LA today!