What You Need to Know About Refinancing Your Home Loan
Maybe you’re thinking about refinancing your home because your credit score has improved since you closed on your home or you’re thinking about switching the type of loan you have. Or, you’re just excited about rates dropping to historical lows at this moment. As of the March 3rd, 2020, interest rates are at some of the lowest the real estate industry has seen.
Let’s dig into home refinance and see if it’s a good fit for you.
How does a home refinance work?
There can be a lot of benefit to refinancing your home loan, but just like when you applied for your original loan, you’ll need to make sure you shop for rates, have the right supporting documents, and fill out a home refinance loan application.
Why You Might Want to Refinance a Home Loan…
To change your rate type. If you currently have an adjustable-rate mortgage, it means your payment could increase or decrease as interest rates changes after a certain period of time—often five or seven years (depending on your mortgage agreement). If you know you’d like to stay in your home longer, or just want a more steady long-term payment, making the change to a fixed rate could be the right switch.
Gain access to your equity. While you’ve made payments on your home, you may have built up some equity, especially if home values have also gone up. You may be eligible to cash out a portion of your equity with a refinance. This is known as a “Cash-Out Refinance” and can be a smart way to pay off other debt, make a large purchase, or even finance home improvements.
Change the loan term. By changing the length of the loan (let’s say you have a 30-year mortgage and switch to 20 or 15 years) you could save money with a lower interest rate.
Lower the interest rate and payment. Lowering your interest rate on your home loan with a refinance can lower your payment overall. If your credit has improved since you bought your house, or there’s a drop in the market rates, you may be able to save a significant amount of money.
Frequently Asked Refinancing Questions
“What happens to my credit score if I do want to apply for a home loan refinance?”
Any “hard inquiry” when submitting an application may take a few points off of your credit score for a little bit of time, but if you have a good score to begin with you shouldn’t see a large impact. And if you are rate shopping, multiple applications within a 30 day window are counted as one “hard inquiry”.
Something to keep in mind: If your home loan is one of the longest loans you have in your credit history and you choose to refinance, you may see a slight impact to your score because a refinance will restart the length of that loan.
“Should I think about refinancing if I’ve already paid 10-15 years into my fixed 30 year mortgage?”
This is ultimately your decision as a home owner, but it will be important to determine how long it will take to reach the point where your savings from a home refinance offsets the cost of refinancing. *Your mortgage loan officer can help calculate any of this!
The Consumer Financial Protection Bureau recommends looking into how much equity you’ve put into your home so far before refinancing your home. In the early years of a home loan, the more of the payment is going towards the interest on the home. When you refinance, you’re beginning that process over and not putting as much equity into your home.
In these cases, one particular benefit of refinancing may be to refinance with a shorter term (creating bigger savings in the long run).
“Are there prepayment penalties on my existing home loan?”
A prepayment penalty is rare for home loans, but they can happen depending on your situation. The good news, is there are time restrictions for prepayment penalties for up to three years thanks to the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. You can read more about that here. *We don’t want to get into legal jargon, but it’s important to know your rights as a home owner.
“Is refinancing available for other types of home loans, like Jumbo or First Time Homebuyer?”
It depends on your situation, but typically there are refinancing options available. You can reach out to one of our mortgage loan officers for more information.
“But is now really the best time to refinance? Are we SURE the rates won’t go lower any time soon?”
The fact is that the market can be really unpredictable. We don’t know what the rates will be a year from now. If you’re comfortable in your research and know refinancing is a good move for your home loan, it may be the perfect time for you.
What matters to you, matters to us. We believe in people helping people and your home loan refinance should be no different. You can speak with one of our awesome, experienced Mortgage Loan Officers to see if now’s a good time to refinance at 877-269-4179.
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