Other Good Reasons To Refinance
Another reason to refinance is that you can lower your monthly payment.
In the previous example, that owner could save nearly $100 a month by refinancing. That kind of green adds up fast. And it can make a big difference as your financial situation changes.
Maybe a baby is on the way. Perhaps you want to buy a new car. Or youre seeking to put away more money toward a college fund. These are all important motives to reduce your mortgage payments with a lower interest rate.
Refinancing sooner versus later can also be a good strategy if you:
- Want to take extra cash out to pay for something big like home improvements
- Want to use equity for debt consolidation, paying off high-interest credit cards or personal loans
- Want to switch from an adjustable-rate mortgage to a safer fixed-rate mortgage
- Need to take a partner off your loan due to a recent separation
- Have an FHA loan, which requires mortgage insurance premiums, and you want to eliminate those extra payments. A conventional wont require private mortgage insurance if you have at least 20 percent equity in your home
- Have seen a boost in your credit score recently you may qualify for an even lower refinance rate with a higher credit score
Yes, you could save money by getting lower monthly payments. But a mortgage refinance loan can also help you with bigger-picture financial goals.
Interest Rates Dropped Slightly
Even though lowering your mortgage rate can help you save quite a bit of money over time, the difference in rates needs to be large enough to warrant paying closing costs on the new loan. If rates have only fallen fractions of a percentage point, its probably not enough to make refinancing worth it.
Its Better To Refinance Sooner Rather Than Later
Its never too early to think about refinancing your home loan.
There is no minimum time wait. A mortgage is a contract. As soon as you can get a better deal, you should terminate the contract and take that better deal, says Realtor and real estate attorney Bruce Ailion.
Closing attorney Chuck Biskobing says there are no major risks to refinancing within a year or so of purchasing.
Ive seen people refinance three times in a year to follow falling interest rates, says Biskobing.
Say you want to apply the money saved each month back to the loan in the form of accelerated payments toward the principal, he says. If so, you will almost certainly pay off the new loan faster than the old loan. And youre not adding enough time on the loan to really matter.
In other words, youre not resetting your loan term by much if youre just six or eight months into the mortgage.
But if youre much further into your loan say five to 10 years resetting to a new 30-year mortgage may not pay off.
To find out if a refi is worth it based on your remaining term, try this refinance calculator.
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Locking In Your Interest Rate
After you get approved, you may be given the option to lock your interest rate so it doesnt change before the loan closes.
Rate locks last anywhere from 15 60 days. The rate lock period depends on a few factors like your location, loan type and lender. If your loan doesnt close before the lock period ends, you may be required to extend the rate lock, which may cost money.
You might also be given the option to float your rate, which means not locking it before proceeding with the loan. This may allow you to get a lower rate, but it also puts you at risk for getting a higher one. In some cases, you might be able to get the best of both worlds with a float-down option, but if youre happy with rates at the time youre applying, then its generally a good idea to go ahead and lock your rate.
Increasing Your Loan Term
Income changes can happen at a moments notice. Even if youve already refinanced in the past, you may need to increase your loans term again if youre having trouble making payments.
A second or even third refinance is preferable to foreclosure for homeowners and lenders. However, remember that every time you refinance your loan to a longer term, you increase the amount you pay in interest.
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Am I Eligible To Refinance
- You owe less than 80% of the property value: Ideally, you should owe less than 80% on your mortgage, otherwise, you may have to pay thousands in .
- You are on a variable rate: Its possible to refinance every 6 months but be aware that youll every time you submit a new application.
- You can refinance from a low doc to a full doc: If you had a but now have sufficient income evidence, you may qualify for a standard home loan at a sharper interest rate.
- You can refinance out of a bad credit loan: You can back to a major lender if your is 80% or less and the black marks are no longer showing on your credit file.
Rules For Refinancing Fha Loans
An FHA loan is a mortgage insured by the Federal Housing Administration. The FHA has several types of refinances, each with its own rules.
If you want to get an FHA refinance to borrow more than you owe and take the difference in cash, you’re looking at an FHA cash-out refinance.
If you don’t want to take cash out, and you’re willing to get an appraisal, you may choose an FHA rate and term refinance or FHA simple refinance.
If you have an FHA loan and want to refinance into another FHA loan without getting an appraisal, an FHA streamline refinance may be what you’re looking for.
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When Is Refinancing A Bad Idea
Its tempting to want to refinance when you see how low the current market rates are, and how many other people are doing it. However, after considering your own circumstances, you might find that refinancing isnt a good choice for you if one of these situations applies.
- Youll extend your loan term substantially. Suppose youre five years into a 30-year mortgage. If you refinance into another 30-year loan, youre putting yourself in a situation where youre paying a mortgage for 35 years instead. Since you mostly pay interest during the first years of a 30-year loan, this type of refinancing can be costly in the long run even if it lowers your monthly payment in the short run.
- When your break-even period is too long. If refinancing into a shorter term is not an option, youll want to calculate your break-even point. Divide your closing costs by your monthly savings to see how long it will take you to come out ahead by refinancing. For example, if youd pay $3,000 to refinance into a new 30-year mortgage that saves you $200 a month, it would take you 15 months to break even. If you planned to sell your home in a year, you would lose money by refinancing.
What Is Home Loan Refinancing
Home refinancing involves paying off your existing home loan by taking off a new home loan with better terms such as a lower rate of interest. The new loan can be taken either with the same lender or a new lender. The old loan is closed off. The borrower can start payments on the new loan. A loan with friendlier payment terms will help the borrower increase long-term savings on interest.
For example, a loan of Rs 50 lakh at 8.00% for 20 years attracts interest of Rs 50.37 lakh. If this loan is refinanced at 7.00%, the interest falls to Rs 43.03 lakh, ensuring savings of nearly Rs 7 lakh, which can be used for savings, investments, and the achievement of various aspirations such as travel, vehicle upgrade, or higher education.
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Chat To A Lender Or Broker
Theyll be able to look at your personal situation, including why you want to refinance and the potential benefits, while taking your finances into account. They can also outline whats involved, guide you through the steps in more detail and be on call when you need them. They can help you specifically to:
- Negotiate with your existing lenderIf your home loan is with us, we can chat about your interest rate options.
- Compare your optionsTo weigh up different loan types and find one that might suit your situation, needs and objectives better. Compare loans with our refinance savings calculator.
- Apply for a new loanItll be similar to applying for your first home loan.
If youre looking to switch to Bankwest, you can start the application process online or with a Home Lending Specialist. To help keep the application process as transparent as possible, you can track your application online in real time with our Home Loan Application Tracker.
Although its not a new loan for you, it will be a new loan for the lender you choose. A valuation of your property will be carried out and youll usually need to give them statements on your current home loan, as well as a payout figure. This is the amount remaining on the loan that will be paid out to your current lender.
The Basics Of Mortgage Refinancing
Because a homeowner who refinances is essentially taking out a new loan, the cost of acquiring the new loan must be compared with potential savings. It could take years to recoup the cost of refinancing.
As with the initial mortgage loan, a refinance requires a number of steps, including credit checks, underwriting, and possibly an appraisal.
As with the initial mortgage loan, a refinance requires a number of steps, including credit checks, underwriting, and possibly an appraisal.
Typically, however, many homeowners start with an online search for the rates they qualify for.
The secret sauce that makes up a mortgage refinance rate might seem like a mystery right up there with how car sellers price their inventory, but there are some common factors that can affect your offer:
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Risks Of Refinancing Your Home Multiple Times
There is no set rule about the number of times you can refinance a mortgage. And if youve recently closed on a house, youre familiar with the mortgage process. But just because you can refinance your home multiple times doesnt mean its a good idea. Here are some of the potential risks of multiple refinances.
1. Servicing Costs May be More than Interest Savings
A refinance is technically a brand new mortgage, complete with closing costs. Thats why, depending on your circumstances, a modest decrease in interest may not make a big difference over the life of your loan and may end up costing more. Using a refinance calculator and talking with your lender can help you see the big financial picture.
2. Extending Terms Adds Interest to the Life of Your Loan
Whether its switching from a fixed-interest mortgage to an adjustable-rate mortgage, or cashing out, you may simply be prolonging your loan and adding interest with every extra month in your new term. Its important to understand how interest will affect how much you pay over time.
3. Potential Problems Selling Your Property
If you are refinancing to extend terms or to cash out, any dips in your homes value may result in owing more on your mortgage than your home is worth. If you need to sell your home, you may not be able to recoup the remaining balance on your mortgage.
4. Refinancing Again May be More Difficult
5. Reduces Focus on Retirement & Savings
6. Extending Debt Into your Retirement
Switch To Interest Only
Temporarily switching to from principal and interest repayments may be another option for some borrowers, especially those taking parental leave.
Like extending your loan term, switching to interest only helps to reduce your repayments and frees up your to pay down higher interest debts or to build up your , giving yourself a buffer against interest rate rises.
The added benefit of an offset facility is that you can access these funds easily if and when you need them.
Keep in mind that both of these options should only be considered as short-term solutions because they can make your mortgage more expensive over the long-term.
When You Should Refinance Your Loan
Timing the refinancing well makes a big difference to your loan payments. Here are the situations under which it makes sense to refinance.
WHEN THERES TIME LEFT ON YOUR LOAN: Refinancing early in your loan tenure typically in the first half makes more sense. During this time, your EMIs focus mostly on interest payments. Therefore, a refinanced loan at a lower interest rate will lead to savings.
WHEN YOU GET LOWER INTEREST RATES: Often the biggest part of home ownership cost is the interest on the home loan. A loan cheaper by around 50 basis points or more could lead to a shorter loan tenure, lower EMIs, lower interest payments, and large long-term savings.
WHEN YOUR CREDIT SCORE & INCOME IMPROVE: An improvement in your credit score as well as income stability will allow you to access the best loan offers.
WHEN COSTS OF REFINANCING JUSTIFY IT: Refinancing has a cost. When the projected savings from refinancing exceed the costs, you should consider refinancing.
WHEN YOURE GETTING BETTER SERVICE: Digitised account management, on-tap customer service, proximity to branch, lower costs of account management coupled with the above-mentioned reasons, make for a compelling case for refinancing.
Calculating Your Cost To Refinance Multiple Times
The decision to refinance really comes down to crunching the numbers. You can refinance as often as you like, as long as it makes financial sense .
If your goal of refinancing is to save money, youll want to consider the closing costs in comparison to your potential savings. Generally, these fees will be about 2% to 5% of the loan principal.
Another catch to keep in mind when considering refinancing is prepayment or early payoff penalties on your mortgage. Some lenders discourage borrowers from paying off their mortgages right away, as that prevents them from earning much profit on your loan. If your lender charges an early payment penalty, youll need to factor that cost into the overall savings of refinancing.
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Should I Consider Switching To A Variable Or Fixed Rate
Choosing between a variable or fixed-rate mortgage is a personal decision and should be made based on the individual circumstances of the borrower. There are, however, a few generalisations that can be made to potentially help guide the decision.
Benefits of a fixed-rate:
- Know what to expect. Borrowers on a fixed rate can budget repayments for a confirmed period without worrying about fluctuations.
- Protect yourself from rate hikes. For as long as the fixed-rate period stipulates, borrowers on this loan type dont need to worry about a sudden rise.
Benefits of a variable rate:
- Cash rate cuts. Take advantage of when RBA cuts to the cash rate are passed on the borrower interest rates.
- Flexibility. Its often easier for borrowers on a variable interest rate to refinance to another product without so many fees. For example, in most cases fixed rate borrowers will have a break fee to contend with.
- Extra features. Variable rate home loan holders often have access to more extra features than their fixed rate counterparts. For example, many lenders will give borrowers on this loan type access to making extra repayments or give them the use of an offset account or redraw facility.
How Often Can You Refinance
There are no rules on how often you can refinance your home loan. However, you will need to meet the credit requirements of the lender. These will include the usual credit history, income, and assets criteria you had to pass to get a loan in the first place.
Whether youve had the loan for six months or 20 years, refinancing can be a viable solution to save money and can be considered whenever your circumstances change or you feel your rate isnt competitive. However, its important to understand the costs associated with refinancing and ensure these dont outweigh the savings youll receive from refinancing.
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Reasons To Refinance Your Home Multiple Times
A lot can change in a few months. Thats why it may make sense to consider refinancing even if youve recently closed on a mortgage. How long do you have to wait to refinance? While there is no hard and fast rule, many lenders may decline a refinance request if its less than six months since you closed your mortgage. In those cases, it may make sense to explore other lending options. Its also not uncommon for people to refinance quite early in the life of their mortgage. After all, adjusting to a mortgage can be a learning process. Here are some reasons it may make sense to refinance your home multiple times.
1. Interest rates have fallen
If national interest rates are now lower than the interest youre paying on your mortgage, refinancing may make sense even if youve recently closed on a house. That said, its important to factor in additional expenses for refinancing a mortgage, such as closing costs, or else the amount you end up saving may be negligible.
2. Youre comfortable taking on larger monthly payments
Maybe your partner finished grad school and got a well-paying job, or you have more budget flexibility than you initially thought when you did your initial mortgage math. In this case, a refinance from a long-term, thirty-year loan to a short-term fifteen-year loan can save you money in the long run, even though your monthly payments will be larger.
3. Your plans have changed
4. Your life has changed