Knowing When It’s Time to Refinance Your Home

In order to best understand the most opportune time to refinance your mortgage, it is essential to understand how the process works.

Refinancing is the process of trading in your old mortgage for a new one that features a new interest rate and term. When you refinance your mortgage, the loan officer who grants you the new mortgage basically pays off the remainder of your old mortgage and provides you with a new mortgage- by refinancing the remaining amount. Another way you can think about refinancing is that you are “resetting your mortgage” – not getting rid of existing debt.”

Considerations

When you’re considering refinancing, it is important to do your research and crunch out the numbers to make sure that the deal is better over time as opposed to being beneficial short-term. Interest is the silent killer when it comes to refinancing homes; so planning into the future and weighing out scenarios is essential when you’re considering refinancing. This being said, there are major benefits to refinancing with the top three being lower interest rates over time and the opportunity to reduce the term of your original mortgage through standard refinancing, and to acquiring cash from the home’s equity value to use on other purchases through cash-out refinance transactions.

So once you figure out that refinancing is for you, when exactly is the best time to refinance your Mortgage?

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You plan on staying in your home for a long time.

Most of the time, when one refinances their mortgage, they end up extending the term of the loan. This means that you will be paying smaller amounts for a longer time. It is important to look at the savings compared to cost as well as how long you want to stay on your property. If you plan on staying for a while, and the numbers are right, refinancing is a good option to save money.

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You want to shorten your mortgage term.

Refinancing your mortgage presents the opportunity for borrowers to reduce their mortgage term under reduced interest rates. As long as you’re able to pay the increased monthly payments (which vary from a little to a lot depending on the cost of the mortgage) this is a great option for people looking to pay off their loan sooner rather than later under ideal circumstances.

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Start Early.

A year to a year and a half before you will be buying a home, do a deep analysis of your credit report. This will give you time to make minor changes to your score that can save you big bucks in the end when you start shopping for mortgage rates.

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ALWAYS pay your bills on time.

This is a given! It is also important and make an effort to pay more than the minimum balance if possible.

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Have a mix of credit.

Auto, credit cards, student loans, etc. – Lenders like to see a long and versatile credit history.

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Keep a low balance.

On any given credit card try not to use more than 30% of your limit.

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Start saving now.

It is ideal to try and aim to put a 20% down payment on your home, which requires a decent amount of cash upfront. Start bulking up your savings account now!

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Don’t forget about closing costs!

Whatever you do- do not do these 5 things that will destroy your credit while looking for a mortgage!

When it is time to find a mortgage for your dream home, be sure to contact us so we can help make your dream rate a reality!

How Much Does it Cost to Refinance a Mortgage?

You’ve done your research on the best time to refinance your mortgage, and you are ready to start the process before the Federal Reserve decides to start raising interest rates. It seems like everything else is in place: you plan on staying in your home for a long time, lending conditions have eased, and current mortgage rates are low. Refinancing or “resetting” a mortgage is a great option for home owners who want to take advantage of market conditions like lower interest rates over time, take the opportunity to reduce the term of their original mortgage, or acquire cash from the home’s equity value to use on other purchases through cash-out refinance transactions. Homeowners can also benefit from refinancing by reaping the rewards of an improved credit standing in most situations.

Costs

But how much does refinancing your mortgage actually cost? One thing that most homeowners forget to consider when considering a refinance is that there are fees associated with the process. These fees vary based on location and company, which is why it is essential to shop around before you refinance your mortgage. Below are some fees to keep in mind and to discuss with your lender before making a refinance decision:

Your credit report = Your financial report card.

You want all A’s – Like we mentioned before, your credit score is a representation of how well you can handle your money, and can make or break a lender’s decision to approve you for a loan or mortgage, and impact your interest rates majorly. Your credit report is made up of how much money you’ve borrowed, your history of paying it back, and how much open credit is available to you. Here is what appears on your credit report: debts and a history of how they’ve been paid, public record information (tax liens, bankruptcies), bills referred to collection agencies, and inquiries made about your creditworthiness.

Credit Score

Credit scores range from 300-850 points and are based on debt, amount of time you’ve used credit, debt totals, how often you apply for new credit, and types of credit you currently use based on information received from your credit report.! Having good credit is essential for having a healthy financial presence. So now that you understand how vital it is, check out these tips for improving your credit before shopping for a mortgage!

Closing Fees

Once you have been approved for your refinance, closing fees come into effect under names like paperwork fees, attorney review/closing fees, or closing costs. These can get pricey, so it is important to take them into consideration before applying.

Other Fees

It is crucial to understand the terms and conditions of your refinance like the back of your hand. Discuss with your loan officer things like prepayment penalties (fees that can cost anywhere from 1-6 month’s interest payments) that charge you for paying off your existing mortgage early, and other penalty fees that could impact you financially.

No Cost Refinancing?

Most mortgage-related fees are paid upfront at closing, however some lenders offer “no-cost” refinancing, which includes these fees in your loan balance or interest price during the term of your refinance. Once you take into consideration all of the fees that will be associated with your refinance, calculate the break-even point of your new mortgage through online resources. If the refinance still makes sense financially, sign the papers! If you’re feeling overwhelmed, don’t fret. The Home Ownership and Equity Protection Act (HOEPA) protects those who refinance from high fees and interest rates. Alpha Mortgage is proud to serve North and South Carolina with the best mortgage rates and informed loan officers. Need more information about refinancing your mortgage? Contact us today.

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