Refinancing allows us to replace an unsustainable or inadequate home loan with one we can live with over a long time. If your goal is to replace your mortgage with a lower interest rate, refinancing is your best bet. There are different mortgage refinancing options you can choose from. Some of them are cash-out refinancing, where you tap your home’s equity to take out a larger mortgage, and a fixed-rate mortgage refinances want to replace your adjustable-rate mortgage with a more stable one.
Here are some things you should know in refinancing your mortgage that would help you decide whether refinancing is best for you or not.
Advantages of Mortgage Refinance
Some of the advantages of refinancing a mortgage vary depending on the loan term you will choose. A 15-year and 30-year fixed mortgage refinance both qualify for a lower interest rate, reducing your total loan cost. However, a 15-year fixed mortgage refinance has a shorter payoff date and larger monthly payments. In comparison, a 30-year fixed rate has a longer payoff date and smaller monthly payments but may have you pay more in interest charges than with a shorter refinancing term.
Fixed vs. Adjustable Mortgage Refinance Rate
A fixed mortgage refinance rate has a set rate of interest that does not change throughout the loan’s life. You can choose from 10, 15, 20, or a 30-year fixed refinance rate, whichever suits you best. In contrast, with an adjustable-rate mortgage (ARM), the interest rate may fluctuate over time.
When you refinance from an adjustable-rate mortgage to a 15-year fixed refinance rate, for example, you are adjusting the terms of your loan by going from an interest rate that changes to one that remains the same within the life of your loan. By choosing this, you’ll get a lower interest and shorter loan term, resulting in higher monthly payments.
How to Apply for a Mortgage Refinance
In applying for a mortgage refinance, you will need to provide your lender with documentation to validate your employment history, creditworthiness, and overall financial state. Likewise, if you are applying with someone else, you will also be obliged to give the same documents. Just be sure to spend your time and carefully fill out the application as correctly and precisely as possible. Not exposing credit problems up-front or holding back demanded documents will prevent the process and probably prevent the approval of the mortgage. So, it is to your advantage to fully disclose everything regarding your finances.
Many homeowners choose to refinance their homes to use their equity in cash to pay for planned or sudden expenses. At the same time, others want peace of mind by having a stable rate to plan their finances accordingly without worrying if it’ll go up or down. Whatever mortgage refinance you choose, make sure you won’t be putting yourself in a difficult situation, and you’d be able to pay them off in time.