Secret Uses of a Refinance Loan
A refinance loan allows homeowners to expand their existing mortgage with an additional loan. Typically, most people refinance their mortgage to reduce their payments every month, change to a fixed-rate mortgage, or lower the interest rate. Also, some people refinance their loans to get access to more money to do home renovation projects or just pay debts.
Regardless of what you want to do with the money, the process is more or less the same as when you asked for the loan in the first place. In this article, we are going to explain the secret uses of a refinance loan, how to look for the best loan options, collect the right documents, and submit everything so that it is approved.
Equity and Credit Score
In 2020, according to the Federal Reserve Bank of St Louis, the price of homes in the United States has declined as a result of the impact of the COVID-19 pandemic on the economy. However, many homeowners have seen their mortgage equity increase from 2019 to this year. Properties with at least 20% equity have better chances of qualifying for a refinance loan than those that don’t.
Additionally, knowing your credit score is crucial. Some homeowners are surprised that, even with good credit, they don’t qualify for lower interest rates. Banks typically ask for a credit score of 760 or higher to qualify for a new loan. Borrowers that have a low score may get a new loan, but the interest fees may be higher.
Benefits of a Refinance Loan
There are many reasons why people ask for an extension of their mortgages. Some of the secret uses of a refinance loan include:
Lower Monthly Payment
According to one study conducted by Benjamin Keys for the National Bureau of Economic Research, an average homeowner saves up to $160 or more every month when they refinance their loan. There are mortgage refinance deals that lower the monthly payment, so that owners can put their savings somewhere else. This allows people to pay other debts and expenses, or pay off their loans sooner.
There are many websites and refinance calculators, such as Zillow’s, that help users to make this decision and see whether or not they should go for it. Also, the best mortgage refinance companies offer homeowners the chance of going through this process with the help of professionals who know how to get the best refinance mortgage rates.
Not Paying for Private Mortgage Insurance
Some homeowners are not required to pay mortgage insurance, which reduces their monthly payment, as well.
Reducing the Loan Sooner
With some extra cash, homeowners can pay off their mortgages sooner.
Changing the Type of Loan
Homeowners can switch from an adjustable-rate to a fixed-rate loan so that the interest rates don’t change their monthly payments. Having a fixed rate gives people some security that their payment rates won’t change every month.
Consolidating your Home Equity Line of Credit
By rolling both the mortgage and the home equity line of credit (HELOC) into a single monthly payment, homeowners can simplify their finances and focus only on their debts. HELOCs have adjustable rates, but they can be refinanced into a fixed-rate loan. All this would save you money in the long run.
Taking Cash Out
As the home value goes up, owners can take a cash-out refinance loan and use this money for home improvement, large purchases, or paying debts of any kind.
Risks of Refinancing
As with every situation, there are some factors to take into account before jumping into any decisions. Depending on your needs, goals, and financial situation, refinancing is not always the answer.
One of the main aspects to consider is the number of years you are going to be paying the loan. For example, take a homeowner who took a loan in 2015 for a 30-year-payment and he now takes a refinance loan for another 30 years. This person will have extended their loan for an extra 5 years, making it 35 years of monthly payments.
On the other hand, some people take shorter loan-periods, like 15 to 20 years, which often offer better rates. This way, the paying time doesn’t extend that much. Generally, it is a good idea to get a refinance loan if the new interest rate is lower than the one on the current mortgage and the savings outweigh the cost of refinancing.
Taking a refinance loan should be an informed decision made with the help of a professional. Contact Us Today! We’ll get you the best mortgage refinance deals available for your particular situation.