Refinancing your home loan is a good opportunity to lower rates or withdraw money from your property’s equity to put toward other investments. However, before you inquire about an FHA refinance, there are a few things to consider.
Homeowners with negative equity may find it tough to get a conventional refinance. According to a report from CoreLogic, roughly 11.4 million homes have underwater loans. This means the owner owes more on their loan than the house is worth right now.
This number is startling, but it is a major improvement from the end of 2011. At that point, 12.1 million homes had negative equity.
“In the first quarter of 2012, rebounding home prices, a healthier balance of real estate supply and demand, and a slowing share of distressed sales activity helped to reduce the negative equity share,” said CoreLogic chief economist Mark Fleming.
Underwater homeowners may need to opt for a government initiative, such as the Home Affordable Refinance Program. Underwater homeowners are the target group for HARP.
How do I start the refinance process?
Before you even consider restructuring your home loan into more favorable terms, you need to set some goals.
Determine which loan structure would work best with your current financial situation. A new 30-year fixed-rate mortgage could significantly lower your monthly payments. But that extends the lifespan of the loan significantly. This means that although you will have more affordable payments, you will have to make them for a longer period.
Instead, you could opt to refinance into a 15-year fixed-rate loan. While this could yield higher monthly costs, you may be able to pay off your mortgage in full in a shorter timeframe. This will also cut down on the interest you pay over the life of the loan.
There are also adjustable-rate loans to consider. Each one may be right depending on your finances.
Is it the right time to refinance?Â Â
When it comes to refinancing your home loan, sometimes timing is everything. If mortgage rates are falling, you may want to hold off for a little while. This could ensure you get the lowest possible rate, rather than refinancing prematurely and regretting your decision. However, even saving a little money every month is better than none.
You also need to determine how long you plan to stay in your property. Refinancing your home loan and then selling the property a few years later does not make much sense. Like with your first loan, you will probably need to pay closing costs. Spending this money and unloading the property shortly after may not be a cost-effective decision.
Arming yourself with the most up-to-date housing market details is a great way to stay informed of current mortgage loan rates. Freedom Mortgage offers some of the most extensive news, homeowner tips and personal finance information in the industry.
Latest posts by ChuckM (see all)
- A Millennial Guide to Buying Your First Home - January 4, 2017
- Getting to the Truth: Top Mortgage Misconceptions and Facts - December 28, 2016
- What Are the Most Common Reasons Why People Get Turned Down for Loans? - December 14, 2016