Home Refinancing: The Federal Reserve lowered interests rates 0.5% at the start of March 2020, and lowered them again mid-March to 0-0.25%. This explains the new craze for mortgage refinancing. The interest was reduced in an effort to help citizens cope with a difficult years. Consequently, experts say this is the best time to apply for refinancing if you qualify for it.
Refinancing Explained
Taking out a refinance home loan simply means financing your home by adjusting the conditions of the existing loan. You will simply be replacing one loan with another, but with a lower interest rate. Therefore, you will not have two loans. Some of the reasons you might consider refinancing your mortgage are to switch mortgage companies, take advantage of lower interest rates, use the money obtained from refinancing to make a bigger purchase, or reduce monthly mortgage payments.
Refinancing entails shopping around and applying for a loan. To know if you qualify for the loan, you should bring your documents to the lender. Different lenders check for different things, but overall, you should have equity of at least 10-20% in your home, have been paying your loan for at least 12 months, a good credit score to get a lower interest rate, and a regular income.
Closing Fees
Refinancing will cost you a bit of money because you will need to pay closing fees. These fees can be 2-6% of the loan, and include the points fee, origination fee, lender’s attorney review fee, home inspection fee, title search, a new home appraisal, and refinance application fees. Fortunately, you will not be required to pay for homeowners’ insurance, mortgage insurance and property taxes, since these have already been settled in your initial mortgage. Before refinancing, it is important to calculate the closing fees and determine if refinancing makes sense. If the savings will be negligible, there will be no need refinancing.
When refinancing, the lender will include the information in your credit report. It will appear in your credit report for two years and affect your credit score for 12 months only. Most people wonder if they can refinance when they have bad credit. The answer is that it depends on the score; most lenders accept a minimum score of at least FICO 620. Some take as low as FICO 500.
Why Are Refinance Rates Higher, And How Long Can You Wait Before Refinancing?
Lenders make various assumptions when they are giving out loans, and a refinance home loan is no exception. Refinance rates are higher mainly because people tend to default them more than purchase loans. Therefore, lenders charge a higher price to shield them from the increased risk.
Most people wonder whether it is possible to refinance after taking out a mortgage. The answer to this question is yes. However, there are a few things that you should take into consideration. These include the restrictions imposed by the lender, as well as whether you will be putting the original loan’s compensation at risk. Remember that cash out refinance requires you to wait for six months before refinancing, but for rate and term refinancing, you can take them instantaneously.
Indeed, refinancing is a great option for homeowners who wish to reduce monthly payments and take advantage of low interest rates. Just be careful to weigh up the benefits carefully before making a decision.