Mortgage refinancing offers plenty of benefits to homeowners. You can reduce your loan term or pay lower interest which can help you save a considerable sum in your monthly mortgage payments. However, a lot of people still remain confused about refinancing procedures which prevents them from understanding its advantages. In this article, we provide clarification on some common misconceptions about refinancing to help you to determine if you should refinance.
Qualification Doubts
Many homeowners can qualify to refinance even though there are certain eligibility requirements. You could qualify even if you are currently struggling with your credit or haven’t developed much home equity. The rules have become more relaxed now and even if you have employment or credit issues, you can still contact a lender to learn more about the qualifications. Get started and don’t let a lack of financial knowledge hinder you.
For instance, you could qualify for a refinance from a government program like HARP (Home Affordable Refinancing Program) if your loan meets three conditions: it is owned by Freddie Mac or Fannie Mae; it started before 31 May, 2009; your loan-to-value ratio is currently over 80%.
No Reason to Refinance
This is not true, and there is no reason for you not to consider refinancing. The main reason is you can lower your mortgage rate and thus your monthly payments. Another good reason is to reduce your loan life and decrease the interest that you pay over the loan term. In addition, those who currently have an ARM (adjustable-rate mortgage) can refinance it to get a lower fixed-rate. Refinancing is also a good option for homeowners who are looking to raise money for property repairs or purchases.
Too Much Effort and Time is Needed
Some homeowners may be deterred by the amount of paperwork needed for the refinancing process. You may need to submit documents like your title insurance, statement of debts and assets, credit report, income proof (1099s and/or W-2 forms), tax returns and pay stubs. However, if you have these documents stored readily, you can effortlessly provide these requirements.
Even if you cannot find copies of the above documents or have lost them, refinancing is still possible. Homeowners can avail streamlined refinancing if they have government program loans such as USDA, VA or FHA loans. This option can accelerate the refinance procedure and save you money and time. If you want streamlined refinancing to decrease your interest rate, you may not have to face income verification or a fresh appraisal.
Remember that the extra effort, paperwork and time can be easily justified because you can reduce your monthly mortgage payments and save a good amount.
Cannot Refinance with a Different Lender
Refinancing gives you the chance to find and compare mortgage rates and lenders, and can help you obtain a good deal from a new lending entity. You should shop around for options and compare loans from different lenders like mortgage bankers, online lenders, and local banks. You can also seek lenders that are outside of your area. Financial experts advise that consumers shouldn’t depend on banks in their area and should look around for favorable rates.
Mortgage Rates may Reduce
While it’s a smart move to refinance when mortgage rates fall, you do not always know when it will happen. The waiting time can be long, so it’s smart to decide on refinancing based on your goals and situation and whether the option is sensible for you.
Missed the Best Time to Refinance
Increasing interest rates may make homeowners feel they have missed the chance when it comes to refinancing, but experts debunk this misconception. If you’re sure of the refinancing costs and can get confirmation that the option will reduce your monthly mortgage payments, you should go ahead with the move.
However, avoid refinancing if you intend to move soon because you may not be able to recover the closing expenses you paid in order to save money on your loan payment. Experts advise that homeowners should look for their mortgage’s break-even point – their total closing expenses divided by their monthly savings – when they’ll begin saving a tidy amount in their mortgage payments.
Wrap Up
Refinancing may seem overwhelming and complex, but if you learn about the process, you’ll know that it offers an excellent chance to save a decent amount of cash while the going’s good. Take care to select a suitable refinancing solution based on your plans, goals, and time frame.
