Would you like to lower your monthly house payment? How about consolidating your loans? If so, a refinance should be on your mind.
Though there are many benefits that come with refinancing a mortgage, it’s important to consider all aspects before jumping ahead. Refinancing your mortgage may not always bring the results you think it will.
Refinancing is a big step, similar to when you purchased your home. So you want to make sure you do it right.
To help you assess your situation, we’ve created this guide. Keep reading to learn more about the pros and cons of refinancing your mortgage.
What is a Refinanced Mortgage?
When you first purchased your home, you likely took out a mortgage in order to pay for it. You may not have received the best rates at the time. You may be paying more than you need to.
Interest rates change, as does your credit score, so refinancing could be a great option for you. If you’d like a lower interest rate, you’d like to change the term length of your loan, or your credit score is better, you should consider refinancing.
When you refinance your mortgage you replace the original mortgage with a new one. In the process, the old mortgage is paid off. If you acted at the right time and in the right way, your payments should be lower or your terms should be better.
There are both pros and cons to refinancing, though. Let’s look at some of them.
Pros of Refinancing Your Mortgage
There are many reasons why you should refinance your mortgage. Consider these pros in relation to your personal circumstances.
Your Credit Score
Your credit score plays a role in the interest rate you’ll receive for your mortgage. Your credit score may be higher now than when you took out your first mortgage. If it is, you might be able to get a better interest rate.
You Have Equity
If you’re considering refinancing your mortgage in Kansas City you’ve probably been in your home for a while. If that’s the case, you now have equity in your home.
If you refinance your mortgage, you could cash out that equity if you wanted to. If the value of your home has gone up, that could be quite a lot of cash.
Lower Interest Rate
Interest rates don’t stay the same, so you may be able to get a lower interest rate if you refinance. Make sure you shop around to compare rates. Your current institution may not offer the best deal.
The lower your interest rate, the less you pay above the actual price of the house. This will lower your monthly payments or help you pay off your mortgage more quickly.
No Mortgage Insurance
Did you have to include mortgage insurance when you received your first mortgage? If so, you could get rid of it with a new mortgage. Refinancing would give you this opportunity.
Once you have 20% equity in your home you no longer have to pay for Private Mortgage Insurance (PMI).
Shorter Mortgage Term
If you’d like to pay your mortgage off quicker, refinancing can help with that. If you currently have a 30-year loan, you could switch to a 15-year term instead.’
If you’ve entered the military since you took out your first mortgage, you’re now eligible for perks you weren’t before. Refinancing can help you take advantage of the benefits offered to military members, veterans, and their spouses.
Cons of Refinancing Your Mortgage
There are many benefits to refinancing your mortgage, but there are some cons too. Here are some things to be aware of:
Your Credit Score
Your credit score may have gone down since you secured your first mortgage. If so, it probably isn’t a good time to refinance. Your credit score is used to determine your interest rate, so if your score is worse you could end up paying a higher rate.
There are fees associated with refinancing your mortgage in Kansas City and most other places. You’ll have to pay these in order for the refinance to go through.
Refinancing isn’t an instant thing. Just like a regular mortgage, it will take time. Make sure you’re in it for the long haul if you start the process.
A refinanced mortgage is a new mortgage, so the closing costs you’ve already paid don’t apply. This means you’ll have to pay new closing costs. It may take you a while to recoup the money spent on this.
Consider how long it will take for you to recover the money spent on closing costs and fees. If it will take you a long time it may not be in your best interest to refinance.
Higher Interest Rates
Pay attention to current interest rates. They may be higher now than they were when you first bought your house. If so, don’t refinance right now–you’ll end up paying more in interest than you would have with your original mortgage.
If down the road you end up defaulting on your refinanced loan you stand to lose more than if you defaulted on your original loan. Your home may sell for less than your remaining balance. In some states, this will allow your lending institution to claim other assets to make up the difference.
Penalties for Paying Early
Your original mortgage may include penalties if you pay your mortgage off before the term’s end. Consider these penalties when looking for your break-even point.
The Many Pros and Cons of Refinancing
These are only some of the pros and cons of refinancing your mortgage in Kansas City. There are plenty more you’ll need to consider.
If you’re looking to refinance, don’t forget to take the cons into consideration. It’s easy to look at the pros and get excited. But if you jump into things you may end up worse off than you are now.
As long as you consider carefully and make an educated decision, though, refinancing can be a great option. We can help you decide if refinancing is right for you or not. Click here to get started on a quote.