Most homebuyers apply for a mortgage to invest in a property. However, life circumstances and shifting interest rates often tempt them to refinance the mortgage a few years later. But, is refinancing worth it? There are positive and negative aspects of refinancing. So, you must assess them before making a decision.
What is Refinancing?
Mortgage refinancing is a way to transfer your current loan to another lender. It lets you renegotiate terms with your current loan provider. So, you will get better loan conditions or interest rates.
The process involves applying for a fresh loan. The new lender will check your credit and reevaluate your property. You should also deal with paperwork for the new loan. Lenders impose a processing charge, though you will save money over time.
Benefits of Mortgage Refinancing
Should I refinance my mortgage? Learn about the advantages of mortgage refinancing.
No PMI
If you have private mortgage insurance, it will cost you money every month. You might have gained 20% home equity on a traditional mortgage. So, you need to ask your creditor to cancel PMI. But, make sure your payment history is good.
Refinancing is the best way to stop paying PMI. When the mortgage rate is low, refinance to a new loan with a lower outstanding loan balance. It will facilitate PMI cancellation within a short period.
Opportunity to Choose a Better Loan Tenure
Refinancing allows you to extend or shorten your home loan tenure. You may make decisions based on your financial status. Suppose your current loan duration is 20 years. But, as you earn more, you are ready to pay a higher EMI. In this scenario, choose a shorter tenure for your new loan.
On the contrary, if you cannot afford monthly EMIs, extend the tenure to reduce the financial burden.
Switch Between Variable and Fixed Rates
The market conditions and your financial health are dynamic. So, you may need to choose a different interest type. For example, you currently have a variable interest rate. However, if the rate is expected to increase, switch to a fixed interest rate. This will ensure stability in the amount you pay every month.
Should You Avoid Refinancing?
You should know both pros and cons of refinancing a mortgage. Let us discuss the reasons for avoiding mortgage refinancing.
Adverse Impact on Your Credit Score
Your mortgage refinance application will temporarily affect your credit score, as lenders make hard inquiries. But, this is not a concern for those with a strong profile.
Risk of Rejection
Your application for a mortgage refinance in South Carolina may get rejected unless you have met your creditor’s eligibility criteria. The lender will not approve your application without evaluating your income stability and repayment history.
A Time-Consuming Option
It takes time to deal with documentation and credit checks. Thus, the verification process will take your time when you refinance. Thankfully, experienced brokers can guide you through the process now, so this is less of a problem than it once was.
After evaluating mortgage refinance pros and cons, you can make the right decision. Ensure you have chosen the most reliable broker to refinance your mortgage. The expert will provide every detail of various loan schemes.
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This material is not from HUD or FHA and has not been approved by HUD or any government agency.