Refinancing Home Mortgage

A study conducted by the Mortgage Bankers Association of America shows that Americans take out a refinancing loan for their home mortgage every four years. Should you follow the trend and refinance your home mortgage as well?

5 Good Reasons to Refinance Your Home Mortgage

Before determining whether refinancing is appropriate for you or not, it’s important to ascertain that you understand how refinancing works. For one, refinancing your home mortgage will not cancel out your debt but it gives you the opportunity to do that and more.

Pay for Your Children’s Education

Sure, the government promises to fulfill every child’s right to education but the White House as well as your state and local government can only do so much. If you want your child to have the kind of education he deserves, you’ll need to contribute your own money for his tuition.

Education, however, is a costly matter. What you’re earning each month may not be enough, but if you refinance your home mortgage, you’ll have the means to put your child through college. After that, you’ll just have to wait a few years more and then you can reap your rewards when your child returns the favor by paying off the loan. The table will turn and this time, your child will be the one supporting you!

Get Better Rates

Desperate times call for desperate measures and this could’ve been the reason why you’ve taken out a loan with outrageous rates in the past. But you don’t need to continue suffering when there’s an option to refinance.

Refinancing allows you to get rid of your old loan and replace it with a better one. Your mortgage refinancing loan can come with lower rates, allowing you to breathe more easily because you know you can pay on time and maybe set aside a little more for savings.

Pay Off Your Debts
Revolving debts are the worst and credit cards are the classic source for them. Refinancing your home mortgage to pay off such debts will be a smart decision on your part. These debts charge exorbitant interest rates but do not offer anything in return as they’re not investments able to earn profit. They only serve to eat more and more of your income especially when you can’t pay on time.

Worse, having too many of such debts can only spell bad things for your credit rating. If you want to free yourself from debts, credit cards should be the first thing to go. Take the first step to financial freedom by refinancing your home mortgage.

Invest Your Money

You’ve come up with an excellent business idea but no one wants to take a risk on your proposal. But if you’re really sure about the profitability of your business plan then why not take the risk yourself? Refinance your home mortgage and use the cash you’ll get from it to start your own business. You may be the sole investor in the business and it may mean shouldering all the risk alone, but when your business starts generating income, it also means getting to solely enjoy the business’s profits.

Prepare for Emergencies

There’s no way to know when emergencies can take place but things tend to get better when you’re prepared for them. Financially speaking, you can prepare for such emergencies by taking out a refinancing mortgage. Whatever happens, having extra cash from refinancing can at least give you a semblance of comfort!

Refinancing Mortgage Rate

Refinancing mortgage rates can make your debts easier or harder to manage. Knowing the various factors affecting them will help you determine the best refinancing mortgage to apply for.

4 Factors Affecting Refinancing Mortgage Rates

Credit Scores
Do you know what your current credit score is? If not, it’s high time that you do. Credit scores play a significant role these days. They can affect the outcome of not just your home mortgage application but even that of your bank loan and dream job as well.

Credit scores are reflected on your credit reports. You’re entitled to one credit report from each of the three major credit bureaus every year. Get your free copy and review the items listed in them. Is everything accurate and valid? Bankruptcy details, for instance, may be omitted from your credit report when seven years have already passed since its filing date.

Payment history has the greatest impact on your credit score. In short, how good a payer have you been since your first loan or credit account? If you always pay on time, that can only help your credit score and vice versa. To improve your payment record, however, you should consider speaking with your creditors and convince them to extend your deadline.

Naturally, the size of your debt will also have an impact on your credit score. Reducing the amount of your debt will make your refinancing mortgage provider more amenable to offering you lower rates and better loan terms.

Other factors affecting your credit score are the type of debt you owe, the length of your credit, and the number of new credit applications you have.

Mortgage Payment History
If you have poor credit score, don’t despair just yet: you still have a few more opportunities left open. Let’s consider your mortgage payment history for one thing. Your overall credit score may be poor but if you have an excellent reputation with your mortgage creditors then certainly, your refinancing mortgage provider would be willing to give you lower interest rates for your refinancing loan.

Percentage Complete
Finally, how much or how little is left with your existing mortgage? If you are more than halfway done with your current mortgage and you have been fairly consistent in paying your monthly dues on time, your preferred refinancing company is sure to offer you the best rates available.

Naturally, the opposite applies if you’re seeking to replace a fairly new loan. This is understandable, however, so don’t be surprised when your refinancing mortgage provider asks you lots of questions. After all, you’re basically asking them to shoulder the rest of your debt in lieu of another creditor. They certainly have the right to ask why you’re replacing a loan you’ve just recently taken out.

Source
Last but not the least, consider the type of company or creditor you’re asking. Long standing and well-established refinancing providers have the means of offering their clients with the lowest possible rates as well as the best service. They’re capable of taking greater risks and that’s why they can afford to negotiate your refinancing mortgage rates until you reach a mutually satisfying agreement. Consequently, however, their application requirements are more stringent.

They may, among other things, require you to submit proof that you are earning a specified amount of money each month.

How Soon Can A Mortgage Be Refinanced?

There are many advantages to having your mortgage refinanced.  Of course, the most important and obvious reason is the lower rate you'll enjoy.  When applied at the right time and opportunity, having a mortgage refinanced can save you thousands of dollars in the long run.  However, since timing plays a crucial role in refinancing, it's important that you understand the factors that can affect how successfully you can take advantage of it.  So how soon can a mortgage be refinanced and should you?

The right time
Getting a mortgage is not for sissies.  This type of loan, whether you're taking it out to purchase a car or a house, is easily one of the biggest financial decisions you'll ever make in your life. 

If you're taking out a home mortgage loan and are considering getting it refinanced later, you'll be glad to know that you could probably do it at any time you want.  But once you have a mortgage and interest rates begin behaving in a manner that is favorable to you, you shouldn't automatically apply for refinancing. 

First, the difference in the new interest rate and the current interest rate should be enough to actually give you some advantages.  Second, most lenders will probably advise you to refinance only after your loan has matured for a minimum of 12 months or so. 

However, it's good to consider this only if interest rates have remained more or less the same.  If, at any time after you have taken out a mortgage loan the market trend begins tipping to your advantage, you should consider refinancing your loan.  Remember that interest rates are rather volatile and if you wait too long for them to dip further, you could miss out on a very good opportunity to get a good deal. 

Consider the 2 percent rule.
Just because interest rates have fallen a tiny bit does not automatically justify your decision to refinance.  Consider refinancing only if the new interest rate is at least 2% lower compared to the rate you're currently paying.  A 1% difference in interest is not sufficient reason to make the switch. 

Remember that there are costs associated with a new loan.  When you consider refinancing for your mortgage, remember that you will have to pay extra for closing fees.  An interest rate as low as 1% will not cover the expense.

You have no late payments.
You could go ahead and refinance a mortgage provided you have paid your loan faithfully for the last 12 months.  If you have never had a late payment during the last year, you could make the shift and have your mortgage refinanced.

You have already built up equity.
If you want to refinance a mortgage soon, try to examine if you have already built up equity.  You should have a minimum of about 5% or 10% equity (depending on the lender) before you could consider refinancing as a feasible option.

So is refinancing an option for you?
Of course, you can always consider refinancing your mortgage at any time you feel most comfortable.  The key is to consider the time factor, along with the type of opportunity being presented by the market.  After all, refinancing is really getting a new loan.  Just be prepared for the procedures and costs that you will have to go through all over again.