Maintaining the ownership of your home can become difficult especially at times when you find yourself in a difficult financial situation. Mortgage interest rates may increase if you ask for an extension from your lender, and more often, these interest rates are based on the amount of your loan. With a usual loan, you are paying so much more than the outstanding debt you owe your creditor, and that may be one of the situations when you must consider getting a mortgage refinance. Mortgage refinance works in a way where a homeowner will apply for a new loan to pay for the old one, making the refinance loan the new one which he or she must pay, either through an adjustable-rate term or a fixed-rate term. Before you apply for a mortgage refinance, it is important to determine first what you will be using the money for. Many people make the mistake of applying for loans without a clear goal in mind, leading them to mismanage their funds in the long run. A word of advice: it is best you assess, first, if the loan you will be receiving is worth it or not, given that a mortgage refinance involves a series of steps which involve appraisal, title research, inspection, and many others. With this in mind, it can help you maximize your refinance loan benefits, if you read ahead and learn the things you need to know about mortgage refinance loans.
Mortgage Refinancing For Dummies
As mentioned earlier, mortgage refinancing may be your best bet to save a couple of hundred dollars from the mortgage interest rates you are paying for with the loan you took out in the past. Getting a refinance loan may seem like a good idea, especially if you already have an idea of how loans work, but you should do so with caution. A refinance loan must be used or applied for strategically, to maximize the benefits you can receive from it. Before you apply for a refinance loan, you must take note of several factors which can help you decide whether or not it is a good idea considering your financial situation. Some factors you should consider are:
- The Economy – the way the overall economy is performing can greatly affect several industries which can impact financial institutions. Reading business newspapers or watching business reports on TV, in addition to reading some books on financing, can significantly help. Check how the stock market is performing every once in awhile, and you can also seek advice from experts. Remember, the economic situation of the country is like a set of dominos. If one topples over, then all other industries could also be affected.
- The Housing Market – Sometimes, there are specific industries which may experience improvements (or sometimes, setbacks) which are in contrast to how the overall economy or how other industries are performing. Since your loans can be classified under the housing wing, you can try and check how your local real estate market is faring. Check if the prices for properties have appreciated, and see if you can take advantage of these situations through loans.
- Interest Rates – Interest rates may vary from one creditor to another — and from day to day — and it is your job to determine which ones can give you the best offers for your application. In a grander scale, interest rates are also heavily regulated by the Federal Reserve. As mentioned earlier, you should keep yourself up-to-date with recent trends in interest rates, and you can do this by watching or reading the news and subtly monitoring the economic performance of the country.
- Your Qualifications – some internal factors should also be considered before making a refinance loan. You should check if you are qualified for a refinance loan in the first place to avoid wasting time, money and effort. If you’re not qualified, then at least you can try and prepare yourself the next time you intend to apply for a loan.
- Your Finances – while taking out a loan may be tempting, you should check if you can afford to pay for its amortization. Determine how much of your income will go to the loan payment and assess if you can live by it. Ideally, it should be below 40% of your income. Make sure that you have enough money to cover your expenses once you’ve made the loan.
- Your Intended Use For The Money – Depending on the loan you applied for, some loans grant you cash as a “payment” for the equity of your home, especially if the value of your house has appreciated in value. You should make good use of your money and spend it wisely. Invest it on your house through improvements, paying off an outstanding mortgage, using it as investment capital, and many others. You should take note that it is not encouraged to use your loan as a quick fix solution to immediate problems such as small debts from credit cards or for your monthly bills. If you do it regularly, you may end up being in worse financial shape than you ever dreamed of.
These are only some of the factors you should consider before getting a mortgage refinance. You should take note there are even more factors which need to be considered on top of the ones listed above, and these factors may have context specific meaning, it all depends on what the borrower’s current circumstances are. Regardless, you should strategically take out a refinance loan to ensure you will not drown yourself in debt and that you will be using the money you borrowed appropriately.
Pros and Cons Of A Mortgage Refinance
There are always two sides to every story, a yin to a yang, and a positive to a negative and with that, while refinancing your mortgage loan may seem like a good idea, it also has its fair share of disadvantages, after all, not everything is peaches and cream. Some of the benefits one can get from refinancing his or her mortgage loan are:
- Flexible Payment Plans – there are two terms that you can choose from in applying for a refinance for your mortgage. These payment plans may be adjustable-rate terms or fixed-rate terms. Some creditors also give you an option to switch between the two terms, especially if you can pay for a huge sum ahead of your scheduled payment.
- Lower Interest Rates – Refinance loans have lower interest rates than your principal mortgage loans. A 2% difference in your interest rates can save you a couple hundred dollars. For someone who is in a difficult financial situation, this can mean a lot, given that a few hundred dollars can be used to purchase basic needs and services.
- Equity Cash-Out – the value of your property may have increased, so refinance loans can cash out for your equity. In turn, you can use this cash-out for other important reasons.
While these advantages may be appealing to you, there are also disadvantages in making a refinance loan. Most of these disadvantages may be due to fund mismanagement or simply not having done prior research regarding mortgage refinance plans. Some of its disadvantages include:
- It’s A Gamble – your refinance loan appraiser may assess your property to depreciate rather than appreciate. It all depends on the circumstances surrounding your property which is why, as much as possible, your home must be in great shape for it not to depreciate.
- Undergoing The Same Process Of Applying For Mortgage – your information and your credit history may be researched extensively by the lending company. Be prepared to answer their questions and make sure you have good credit history.
- Costs – a refinance loan application doesn’t come free, as you may have to pay for service charges. Make sure you know what these service fees are beforehand, so that you can prepare in advance.
With these advantages and disadvantages, you should carefully assess if applying for a refinance loan will work for you, or against you. Remember, the way you spend your money is important, given that getting a refinance loan can potentially place your assets at risk, especially if you don’t use the money strategically. Seek advice from experts if you are unsure of how you should spend your money, if you want to maximize the benefits of refinance loans.
Applying for the Lowest Mortgage Refinance Loan Interest Rates
Refinance loans require applicants to qualify under a particular set of criteria. There are several qualifications which must be met by a claimant to get his or her loan approved. This set of criteria is set-up by a creditor to ensure the borrower has the capability to pay back the loan he or she made. With this in mind, here are some of the things you can take note of to get the lowest interest rates for your mortgage refinance:
- Make a list of your prospective creditors. You can ask your family and friends for a list of reputable creditors from your area which they recommend. Doing this can help you save time, given that positive recommendations can give you an idea the experience which others have had with the creditor.
- Select the lender with the best customer feedback. Just like how creditors check the background of their applicants, you should also do the same with your prospective lending company. Some companies may promise deals which are too good to be true, only to have you pay for hidden fees. As much as possible, check the background of your lender by looking at forums and customer feedback on the internet.
- Impress them with a solid credit score rating. Lending companies usually require their applicants to have at least a good standing in their credit score ratings. Some lenders also approve applicants with bad credit scores, but it comes at a price. Interest rates are sometimes based on the risk involved with lending you the money so that a bad credit score may mean higher interest rates. Make sure your credit score rating is at least 700 by paying your bills, debts, and other financial responsibilities on time.
- Show them that you can pay off your debt. You can do this by showing them that your loan’s amortization only takes up a fraction of your income or salary (and not a bulk of it!). Most people recommend you make loans with amortization plans which only take, at most, 40% of your income. Pay within your means and avoid getting delayed with your payments.
These are some of the tips you can follow to ensure you get the lowest interest rates for your refinance mortgage. Make sure that you make your payments on time to avoid getting your property foreclosed.
Getting lower interest rates for your mortgage can help you save money and spend more for basic needs and services, especially if you are in a tough financial situation. One way to lower your interest rates is by applying for a mortgage refinance loan from a reputable creditor. Refinance plans can lower your interest rates by a few hundred dollars, which can be used as additional to your monthly budget. Before you apply for a mortgage refinance loan, there are several factors you must take note of, as these factors can help you decide if refinancing is a good idea or not. If you decide to apply for a mortgage refinance loan, make sure the benefits you get from it outweigh the disadvantages so you can maximize what you will be getting from the loan. Lastly, as you apply for a mortgage refinance loan, do your homework by looking at your prospect’s background and making sure you fit their qualifications. As you get your new loan approved, remember to use your money wisely as this can help you make it through your financial situation. Avoid making late payments to prevent property foreclosure.