Budgeting is one of life's most important skills. It protects people from financial turmoil while streamlining decision-making. For many Americans, one of the first checks they write each month is for the mortgage. When you're not making a lot of money, and have a mortgage to pay off, the monthly budget can be a depressing sight.Verify my mortgage eligibility (Sep 30th, 2023)
No matter how frugally you live, the disposable cash you're left with each month is alarmingly low. You figure that at the current rate, life's greatest pleasures will pass you buy. Naturally, the mortgage payments aren't something you can abandon altogether either. All you want is to be able to have fun, without having to worry about how it'll hurt your bottom line.
Lucky for you, there are options that you can look into. A mortgage refinance is slowly gaining traction among homeowners as a lucrative option. In this article, we'll go over the basics of refinancing such as what it is, how it works, and how it can reduce your monthly mortgage payments.
What is Refinancing?
A refinance, also referred to commonly as a "refi" is simply the process of replacing the terms of a financial obligation with a new one. When it comes to home ownership, it refers to discharging your current mortgage, and replacing it with a new one. Hence called a mortgage refinance. The terms of the previous mortgage are dissolved along with the agreement itself, and a fresh one is undertaken with revised terms.Verify my mortgage eligibility (Sep 30th, 2023)
Refinancing is an attractive option for people for various reasons. It can allow individuals to secure better terms for their mortgage if the financial climate is more favorable than it was when the mortgage was originally taken. It also allows for financial maneuvering based on changing circumstances, such as a dip or increase in income levels.
How Does Mortgage Refinance Work
It's not an easy process by any stretch of the imagination. The process can cost up to 6% of the principal and carries the same thorough inspection of your finances and property as a traditional mortgage. To begin the process you must approach an institution that is willing to lend you money. This can be the same as the one you have a mortgage with currently, or a different one.
The lender will carry out their due diligence, inspecting your financial situation to determine your creditworthiness. If all goes well, you'll get the go-ahead and your refinance will be as good as done.Verify my mortgage eligibility (Sep 30th, 2023)
Refinancing to Reduce Monthly Payments
Let's now take a look at how you can use this financial tool to reduce your monthly payments. Lower monthly payments will allow you to have more cash-in-hand at the end of each month to treat yourself, or enter into other financial commitments.
Refinance to Change Rates
One of the most common reasons people seek out refinancing is to lower their interest rates. Well, to be precise you're not the one who is lowering the rate. The financial climate has resulted in lower interest rates, and you wish to take advantage of these. It can be a real drag, if you have to pay based on rates that were agreed on in the past.
Through refinancing, you can replace the interest rate on your current mortgage with market rates for today. With a lower interest rate, your monthly payments will obviously begin to fall as well. This is how refinancing for rate change can lower your monthly payments.Verify my mortgage eligibility (Sep 30th, 2023)
Refinance to Change Tenure
The loan tenure indicates the length of the loan. Most mortgages are 30 years in length. It's possible to save a decent chunk of change by refinancing to alter the tenure of the loan. When doing so, you have to consider your priorities. If you seek short-term savings and lower monthly payments, you can increase the loan length. So the loan amount will be spread out for longer, and monthly payments will fall.
You can also consider the medium to long term. If you shorten the tenure, at today's low rates then you may pay a slightly larger monthly sum but for fewer years. This means in the long run you'll have paid off your home, and the monthly mortgage payments will fall to zero.
Refinance to Change Terms
Mortgages are available in both variable and fixed interest rates. In the long run fixed interest rates offer stability and security, which is why they're a popular choice for many. However, if interest rates are falling and are expected to continue to stay low, then it may be a good idea to change the type of rate that applies to your mortgage. You can do this through mortgage refinance.Verify my mortgage eligibility (Sep 30th, 2023)
A lower variable rate can lower your monthly payments and give a boost to your monthly savings. However, due diligence is required in this regard because if rates begin to rise you'll end up paying far more than what you were paying under the fixed rate.
Refinance Due to Change in Circumstances
If your financial position wasn't great at the time of your original mortgage, chances are the lender labeled you as a high-risk investment. This is generally due to a poor credit score. As a result, you were offered terrible terms on your mortgage. You accepted them at the time because you had no other option.
Now, you know that credit scores and financial situations are always changing. It's possible that you are in a far better place now than you were back then. With an improved credit score, better employment history, or general improvements in your finances, you become more credit worthy.Verify my mortgage eligibility (Sep 30th, 2023)
If you refinance, the new lender will use your current situation to offer you terms. These will certainly be better than the previous ones. So, you can receive improved terms, resulting in better rate and terms, ultimately lowering your monthly payments. All this can be done through refinancing.
Still confused about some aspect of refinancing? Want to see if you can take advantage of a mortgage refinance? Contact a specialist at CMS Mortgage Solutions Inc.Show me today's rates (Sep 30th, 2023)