4 Things to Keep In Mind If You’re Thinking About Refinancing Your Home
Refinancing your home involves replacing an existing mortgage with a new loan. Typically, homeowners refinance their mortgage in order to lower their interest rate, change their program from an adjustable-rate mortgage to a (less risky) fixed-rate mortgage, or to reduce their monthly payments.
If you’re like most Americans, you probably have no idea what someone means when they talk about interest rates or adjustable rates. And that’s okay.
It’s time to dive a little deeper into the world of refinancing your mortgage. If you’re thinking about making this big financial decision, it’s important to keep in mind a few things:
Decide why you want to refinance (before you go through with it!)
Maybe you’re just trying to get some cash in your hand in order to make a big purchase or pay off some other debt. Not including mortgages, the average American has about $38,000 of debt. But you need to make sure you’re spending a lot of time thinking about whether or not this is a good idea for you and your financial situation. It might make sense to refinance if you’re short on cash and want to save money each month.
Other reasons people refinance their home are to remove your private mortgage insurance (PMI), reduce the actual length of your loan, consolidate your first mortgage and your home equity line of credit (HOLOC), and use the equity in your home to take out cash for debts and major purchases.
Pay attention to the real estate market
84% who have invested in real estate indicated that they will make another real estate investment. Though this is very promising for the market as a whole, the interest rate market, typically, is a beast of its own.
If interest rates are sky-high right now — even higher than your current — you’re much better off waiting a little bit to refinance your home. Conversely, if they are low, it’s a great idea to talk to your mortgage company about refinancing because you could end up saving some serious cash!
Know the difference between Adustable-Rate and Fixed-Rate mortage
Adjustable-rate mortgages are enticing — at first — because they offer lower rates than fixed-rate mortgages — at first. However, after a few years, those rates could skyrocket in a single day and you and your family might be left scrapping by to gather enough money each month to make a payment.
When this occurs, making the switch to a fixed-rate mortgage will result in potentially significantly lower interest rates and eliminate concern over future hikes.
Do you plan on selling your home in the future?
You need to always plan ahead. Think about your current situation. If you’re happy with your home and are growing your family — you’re probably set with your home! If your kids are growing up, though, and moving out soon or you recently divorced your spouse, you might want to consider placing the house on the market and looking elsewhere.
If you do plan on selling your home in the next few years, it might be wise to start thinking about modular construction projects! These homes are small, sure, but they offer all kinds of benefits.
Modular constructions reduces energy consumption during the building process by around 67% and reduces energy costs later on for occupants.
Remember, it’s your money, your home, and your life. But getting a mortgage with a lower interest rate is one of the greatest reasons of all to refinance your home. Be sure to talk to professionals before making any major decisions and do plenty of research on your own. You can check out more tips on Daily Prosper. Good luck!
