Many American homeowners are turn to mortgage loans during the pandemic to improve the value of their properties. With interest rates still low, the temptation now is to take advantage of historically low interest rates and refinance these home improvement loans in lower monthly payments.
“A mortgage loan is one thing second mortgage that’s tied to the equity in your home, ”said Jason Gelios, a real estate agent with Community Choice Realty in Michigan. “A home equity mortgage differs from a first lien mortgage in that it can be processed more quickly and generate money for high-interest projects and / or debt consolidation.”
“A mortgage loan is typically less funded than the initial mortgage, and it is also a shorter term loan,” Gelios added.
There are many reasons to refinance, but is this the right time? Whether you want to take out a personal loan or refinance a personal loan, settle the numbers using the free online tools of multi-lender marketplace Credible – where you can compare refinancing rates and lenders.
When to Consider Refinancing a Mortgage Loan
At the moment, the conditions can be favorable for a refinancing of a mortgage loan. The average fixed mortgage rate for 30 years is 2.77% in January 2021. According to Freddie Mac, that is a 3.62% decrease in January 2020. “Consider interest rates are historically low, millions of Americans have the option to refinance their mortgages to save on mortgage interest, ”said Rick Orford, founder of the personal finance website, The Financially Independent Millennial. “For example, a homeowner with a $ 200,000 mortgage at 4% could refinance at 2.6% and save $ 154 a month or $ 55,440 over the life of a 30-year mortgage,” Orford said.
You can use tools like Credible to enter your desired loan amount and estimated credit score to compare rates and terms from different reputable lenders. Get started today to see what offers are available to you!
3 reasons to refinance
While there may not be a perfect time to refinance your equity, some scenarios make sense:
- The rate environment works
- You can get a lower interest rate in the long run
- You can improve the financial situation of your household
1. The tariff environment works
Homeowners can take advantage of a mortgage loan if they have enough equity and the rates are right for what they need it for. “A home loan should be refinanced when rates are significantly lower than what the homeowner currently has with the original loan,” said Gelios.
Are you ready to take out a new loan or refinance an existing loan? Visit an online marketplace such as Credible today to compare rates and conditions.
2. You can get a lower interest rate in the long term
In general, it only makes sense to refinance a mortgage loan if you can significantly lower your interest rate – for the long term.
“See how long you plan to stay in your property,” said Matt Andrews, a real estate investor and author of the Real Estate Investors Guide book series. “A refinance typically adds several thousand dollars to your mortgage, so you should include that in your calculations to see how long it will take you to take advantage of the refinance.”
Not sure how much you will save by refinancing your personal loan? Check out Credible’s personal loan calculator
3. You can improve the financial situation of your household
Refinancing a mortgage loan usually boils down to whether or not you improve your financial health.
Does Refinancing Lower Your Monthly Payment or Lower Your Interest Rate? Is it somehow making you better off financially? If the answer is yes, then it might make sense, ”said John Mantia, co-founder and director of finance at PARCO, in Washington, DC. If you have a high interest loan from years ago and haven’t refinanced yet, research it as rates have dropped dramatically and there are many new lenders in the space.
If you think refinancing is the right move, consider using Credible. You can use Credible’s free online tool to easily compare multiple lenders and view prequalified rates in just three minutes.
When is Refinancing a Mortgage Loan a Bad Idea?
Likewise, there are scenarios where conditions are not conducive to refinancing a mortgage loan:
- If the interest savings are just too tight
- If you are already in a good financial position
- When closing costs are too prohibitive
1. When the interest savings are just too tight
There is no point in refinancing a mortgage loan if the interest rate drop is less than 1.0%. “This would not be beneficial to the home owner,” said Gelios.
2. If you are already in a good financial position
If you already have a low-interest mortgage loan with a payment that you can comfortably make every month, then it may not make sense to refinance. “It is also important to estimate what your new monthly payment will look like [like] in advance, ”Mantia said. “While lower interest rates can save you money in the long run, refinancing may not be beneficial if your new monthly payment isn’t affordable within your lifestyle.”
3. When closing costs are too prohibitive
Closing costs must be taken into account before taking out an equity refinancing loan. “If your bank account balance is low, the costs can make refinancing counterproductive,” said Andrew Postell, a direct mortgage lender and vice president of guaranteed rate mortgage lending in Keller, Texas.
That’s why it’s always a good idea to see a breakdown of your lender’s costs when considering refinancing, as well as an overview of the loan.
“A ‘loan statement’ should break down your expected costs and show a theoretical payment,” said Postell. If it seems like something that could help you, give permission to take out credit to receive official numbers. It is the most official document you can receive when refinancing your mortgage loans – or a mortgage loan. “
What it comes down to
Basically there are two main reasons for refinancing a home:
- To get the equity out of the house
- To curb a home’s mortgage interest
1. To get the equity out of the house
The first way is to effect an equity decrease. “By taking out a mortgage, the homeowner can tap into the available equity in the home (usually up to 80%) and use it as the homeowner wants,” said Orford.
2. To curb a home’s mortgage interest
The second reason a homeowner can refinance is to cut the interest they pay to the bank. “As a result, this will save the homeowner money every month,” he adds. “The homeowner could then use the money to pay off his debts, replenish his emergency fund, or even invest the money.”
You can explore your mortgage refinancing options in minutes by going to Credible to compare rates and lenders. View Credible and get prequalified today
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