Wyndham Capital Mortgage wants to help provide the most affordable mortgage possible, which means helping you answer the most pressing questions regarding refinancing, like: When should I refinance my mortgage? When can I refinance my mortgage? What are the benefits of refinancing my mortgage?
When Should I Refinance My Mortgage?
The first step to answering “when should I refinance my mortgage?” is determining what you’re looking to achieve from a new mortgage loan. Refinancing is a wise choice if you’re looking to lower your interest rate, shorten your loan term or use cash from your home equity to make home improvements, consolidate debt or make large purchases.
Lower Your Interest Rate
One of the benefits of a refinance mortgage is lowering your interest rate, if rates have dipped since you first started paying your mortgage. Where before it was thought that a two percent reduction in your interest rate was an excellent reason to refinance, experts now agree that saving just one percent is worth refinancing. While a single percent may not seem like much in the way of savings, that amount can go a long way in helping to build up equity in your home and reduce your monthly mortgage payment.
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Shorten Your Loan Term
Once you do the math for mortgage refinance and determine you can reduce the life of your loan, it may be a prime time to meet with your mortgage loan officer. As you’re calculating your savings, bear in mind that while refinancing may not seem to change your monthly payment much, combining that with a shorter loan term could save you much more than you realize.
Turn Your Home Equity Into Cash
Another determining factor in answering, “Should I refinance my mortgage” is if you have home equity you can turn into cash for home renovations, emergencies, debt consolidation and investments. If you have at least 20 percent equity in your home you could be eligible for a cash-out refinance. While you are left with a larger mortgage loan than before, cash-out refinance rates are usually much less than interest rates for auto loans, credit cards, personal loans and student loans. Plus, if you plan to use the cash from your cash-out refinance for investments or consolidating debt, you’ll likely save more money in the long run.
To Break Even
As you’re researching refinancing, you’ll likely learn that it costs money to refinance, specifically in paying the same closings costs as you would with an initial mortgage. To keep you from agonizing over the figures and the decision whether you should refinance or keep your regular loan, see if you’ll break even by refinancing.
To determine whether you’d break even by changing the terms of your loan, divide the total of your closing costs by your monthly savings. For instance, paying $4,000 in closing costs/$200 a month in savings equals a breaking even point of 20 months. If you know you’ll stay in your house for longer than 20 months, it makes perfect sense for you to sit down with your lender to discuss your refinancing options.
Frequently Asked Questions
10 years left on my mortgage, should I refinance?
Just like with any other time you refinance, the costs to refinance should not outweigh the benefits. That being said, if you have 10 years left on a mortgage loan that holds a much higher interest rate than current refinance rate options, and considering that it typically costs 2-5 percent of the loan amount in refinancing fees, you can determine if what you’ll save over the next 10 years will make refinancing now worthwhile.
What is needed to refinance a home?
When you refinance you get an entirely new home loan. This means you’ll need to submit an application, prove that you can afford the payments, and have the value of your home assessed. Along with checking your credit score and debt-to-income ratios, lenders generally require:
- One Month of Paystubs
- Two Years of W-2s & Federal Tax Returns
- Two Months of Bank Statements
- List of Debts
- Copy of Your Homeowner’s Insurance Policy
- Recent Mortgage Statement
- Proof of Supplemental Income (If Applicable)
Before you commit to refinancing your mortgage, make sure to consider a few other details. For instance, it makes no difference if you’ll break even, if interest rates are in your favor or if you like the idea of getting a mortgage with a shorter term - you’ll likely be turned down for refinancing if you have little to no equity in your home. That being said, there are government refinancing programs for homeowners in your situation.
You should also run a check on your credit score before you apply for refinancing. If your score isn’t to a lender’s liking, that once-low interest rate may inch upwards.
Related: How to Improve Your Credit Score
Additionally, you should work on improving your debt-to-income ratio while you’re working on your credit score. Requirements may have changed since you last applied for a loan, and the same is true of your debt-to-income ratio.
You should also consider your tax deduction before you choose home refinancing. Paying less in interest could result in a lower tax deduction, which is one reason some homeowners put off refinancing.
Speaking with a Loan Officer at Wyndham Capital will help educate you even more on the refinance process. Whether you're ready to refinance, or need help deciding what is best for your loan, we are here to help get you those benefits of refinancing.
Refinancing is a great way to take advantage of the ever-changing market, and put money back in your pocket!