When you first purchased a home, you borrowed money from a lender to buy the home from the seller. Now you’re making monthly loan payments to that lender to pay back the money that you borrowed.
When you refinance your mortgage, you take out a new loan. This new loan pays off the old loan and you’re left making payments on the new loan.
Refinancing your mortgage can be a great way to save money and get loan terms that beat your current terms. Refinancing can cost money in the short term. Yet, in the long run, you may be able to save a good amount of money by refinancing your mortgage to a lower rate.
When You Should Refinance
We’ve covered the basics of what a refinance is but you may be wondering “why” a refinance could be a good option. There are many reasons why you should refinance your mortgage.
Reduce Your Monthly Payment
With a refinance, you can lower your current interest rate on the amount of money you owe. Refinancing your loan to a lower interest rate will in turn decrease your monthly payment. This means paying the bank less and more of your money going toward paying off your home.
Adjust Your Loan Terms
If your concern is about the number of years on your current mortgage, refinancing to a shorter term may be the solution. Monthly payments with a shortened term may seem like a higher rate, but the years of payments over time will decrease.
While you may not see a payment reduction every month, the amount of interest paid is less, which will save you money down the road.
Take Cash Out
Every month that you make your mortgage payment, you’re building equity in your home. A cash-out refinance allows you to utilize the equity in your home.
These funds mean having the ability to do things such as consolidating your current debt, completing those overdue home improvements, or building a comfy cash cushion for emergency expenses.
With a cash-out refinance, you can lower your total monthly expenses and keep more money in your pocket.
Improved Credit Score
Your credit history plays a significant role in determining your credit score. If your credit score has seen a significant improvement from the time you took out the loan, you could qualify for a better rate.
When you refinance, a lender will take into consideration your credit score and history. If you are paying bills on time and in full, your credit score has probably increased. Keep a close eye on your credit history and take advantage of getting a free credit report before starting the refinance process.
When to Reconsider Refinancing
Make sure refinancing makes sense. At Baton Rouge Telco, our refinancing process generally takes less than 4 weeks after close to getting approval! You will also want to consider the hidden fees that may come with a refinance. These typically include a mortgage application fee, origination fee, and an appraisal fee.
Baton Rouge Telco’s only in-house fees are the $50 application fee and an origination fee of 1% of the total loan amount at closing not to exceed $4,000. The origination fee can be waived with .25% added to your qualifying interest rate.
Remember, a refinance is meant to ultimately save you money — ensuring you break even or save is a good rule of thumb. Otherwise, it may be more helpful to consider the process at a later time.
When Should You Refinance Your Mortgage: Next Steps
You’ve learned the basics of a refinance and why or why not to consider one for your home. Whether this is your first time refinancing or you’re experienced in the process, our team here can help make the process quick and hassle-free.
Understanding the refinance process is helpful when deciding what type of mortgage loan is right for you. Click below to learn more common types of mortgages, how to compare them, and use the calculator to compare costs!