Own a business? Seven reasons why you should refinance your home loan … now!
A home is one of the largest investments and certainly one of the most important financial decisions you will make in your lifetime. There are many reasons why you should at least consider refinancing your home loan. Before making any decisions, it is important to be fully educated. Here are some different things to think about when making that decision:
1. It’s simple to start the process.An experienced mortgage banker should be able to tell you in five minutes or less if a refinance would benefit you just by looking at your mortgage statement.
2. There are no closing cost options.When you hear that term, you may ask, “What does that really mean?” You want to look for an option that is truly no closing costs. Basically, the lender will charge a little higher interest rate and offer a lender credit to cover those costs. You can choose an even lower rate if you’d like, but that involves closing costs and may not be beneficial.
3. Pick a lender that understands borrowers who are self-employed.If you are self-employed, there are additional guidelines that need to be met. There is also the challenge of showing enough income to meet debt-to-income guidelines. Make sure you pick a lender that understands tax returns and knows how to make things work within the guidelines.
4. Eliminate mortgage insurance.Mortgage insurance protects the lender in case of default. This is completely separate from homeowner’s insurance which protects the home and personal belongings. Some mortgage programs require you to hold it for the entire length of the loan. However, with other options you only have to pay it until you owe 80% of the home’s appraised value. Refinancing into an option without mortgage insurance will save you that added monthly expense.
5. Lower your rate or payment.Saving money should be the most obvious reason to refinance your home. By lowering your rate, overall you will spend less money on the loan. By lowering your monthly payment, it frees up some extra cash flow that you can use to pay down other debts with higher rates.
6. Choose a cash-out refinance in order to pay off debt, business expenses, home improvements, etc.Here’s how these work: You are essentially taking out a new mortgage for a larger amount than your existing mortgage and you receive the difference between the two, typically in the form of a check. You can then use that check however you see fit. The amount that would be available is dependent on your current equity in the home and the current value of the home.
7. Pay off your mortgage quicker.There are many terms available when looking into a refinance. Fifteen, 20 and 30 years are the most common. Typically the shorter the term, the better rate you will receive.
No matter which benefit attracts you the most, the important thing is to start the conversation with a lender and go over your options. If it is not a benefit for you now, that is not to say that it won’t be a benefit for you later down the road. If you are not eligible, lenders can also steer you in the right direction to get you eligible in the future.