Refinancing a mortgage may seem like a complicated process, but it’s actually a bit easier than you think. The difficult part is proving to your lender why you should do a refinance in the first place. If you have a good plan and it’s feasible, this makes things a lot more attainable. Take a good look a few options to consider before refinancing.
Make Refinancing a Mortgage Easier Through FHA Loans
Let’s say all of your life you’ve been in a federal loan situation. However, you’ve recently bought a home in the past few years and you’re now in a new federal loan situation. The great thing about a federal refinance is the amount of choices you have available to either put yourself in a better mortgage situation or to diversify your options as far as getting cash from equity. If you simply want to bypass a bunch of paperwork and lower your mortgage rates because your house has undergone a bit of a decline, see what federal streamline refinance has to offer. Don’t worry about a perfect credit score and an incredible equity line. Just keep a record of a stable income. This way you can show your lender that you can keep up with the changes in mortgage payments.
If you have things in order and you’ve really built up an incredible credit score from your payments and solid equity from paying off a great percentage of your mortgage, a federal cash out refinance is a great plan. You’ll instantly notice how much freedom you have as far as investing in additional properties, paying off student bills, cleaning up your auto loans, and financing your dream vacation. This is all well and good, but you need to be sure you can handle what comes with refinancing. Lenders are not going to make this easy for you because it’s not easy for them. There’s even more risk for lenders to let you borrow cash from a situation that’s already based on credit. If you don’t want to deal with appraisal and repair fees, you may not want to enter this type of refinance. However, if you do have a bit of extra money, this may turn out to be a sound investment in the right market.
There’s a Good and a Bad Side to Refinancing
Before we talk about the good side, let’s start off with the bad side of refinancing a mortgage. Normally, if you close out a home under conventional loan guidelines, this requires a great sum of money. Don’t be surprised if a lender asks you to pay 20% of your mortgage upfront. If you have a pretty expensive home, this can cost up to thousands of dollars. This doesn’t sound to appealing upfront, right? You may have other responsibilities that need your attention such as car bills, possibly going back to school, or maybe a vacation in the future. However, this sacrific does not go in vain. There’s light at the end of the tunnel.
The great thing about paying all of this upfront is you won’t have to worry about paying a super high-interest rate which can really increase the duration of your mortgage. Sometimes, this will lead you into debt for a long number of years before you can even begin to recoup. Also, if you do decide to refinance, you’ll have a nice amount to use cash from your equity. Additionally, your closing costs will be taken care of depending on the amount. You won’t have to pay a monthly and annual premium as a result.
Keep in Mind That Refinancing A Mortgage is Risky
Think of how the market may change at any given time. This could either decrease or increase your refinance rates. Also, you really have to know what you’re getting yourself into as far as picking a lender to help refinance your loan. Don’t go for the lowest refinance rate only to pay a huge interest and costly fees. It may take a while to recover. Also, it can take a while for lenders to trust your judgment so that means you may miss out on certain opportunities you could’ve considered in the first place.
If refinancing a mortgage is your goal, take into account all of the fees you have to pay as well as how the interest rate will impact your living situation.