Category: Refinancing

Mortgage refinancing offers a path to financial relief, enabling you to lower your monthly mortgage payments, reduce the total interest you’re on the hook for, or gather funds for home enhancements.

However, the refinancing journey is filled with complexities, particularly for those whose credit scores aren’t top-notch. Choosing to refinance means agreeing to a new mortgage arrangement, which could spell a longer payback period.

The viability of refinancing relies on numerous elements, like the current interest rates and the homeowner’s equity. Because of this, it’s imperative for homeowners to fully understand their personal situation and how can be affected by the choice.

What Is Refinancing?

When refinancing, you acquire a new mortgage that replaces the original, adjusting its face value and potentially securing a different interest rate than initially planned. This allows the lender to utilize funds from the new mortgage to settle the old one, streamlining the process for homeowners and consolidating their loan schedule into one.

With the refinancing process, homeowners are able to lower interest rates, consolidate multiple loans or debts into a single repayment amount, and even possibly borrow from their lender in some cases. The lending institution is what typically helps people achieve this, but it can also be facilitated with other financial resources.

Different Kinds of Refinancing Available

Refinancing might come across as a complex process, but understanding the various types available can demystify it.

Rate-and-Term Refinancing

One option is rate-and-term refinancing, which is quite popular among borrowers. This refinancing approach offers the opportunity to alter the interest rate and/or the term of the loan. It’s primarily sought after for the potential to obtain lower interest rates or to adjust the mortgage term to a more favorable timeframe, aligning better with the borrower’s financial planning.

Cash-Out Refinancing

Equity is the balance between what a homeowner owes on their mortgage compared to what their home would be worth if sold at present. If they cash-out refinance, they’re able to have access to the equity. In this situation, after the homeowner obtains a smaller mortgage to receive some of their home value as cash, another larger accommodating loan is possible for them.

Cash-In Refinancing

Cash-in refinancing is the reverse of the cash-out concept. A homeowner does this by bringing enough cash at closing for a cash-in refinance to pay off their mortgage. This helps the lender reduce payments and improve loan terms by changing them for better ones.

FHA Streamline Refinance

Streamline refinancing is an initiative administered under the refurbishment plan and intended for individuals with a repayment schedule through loans supported by the Federal Housing Administration. Its big advantage is that the amount of paperwork and underwriting required in terms used for this process is minimized. It helps lower monthly payments or for individuals who transition from an adjustable-rate mortgage to a fixed one.

Is Selling an Option After Refinancing Your Home?

Selling your home after going through a refinancing process is entirely feasible. Yet, there are important considerations to bear in mind.

Familiarize yourself with the conditions of your new loan agreement, as there may be prepayment penalties for selling your property within a certain time frame post-refinancing. Thoroughly examining your loan documents or seeking advice from your lender is advisable to grasp any potential financial implications.

Refinancing essentially resets your mortgage term, which could impact the equity you’ve built if you decide to sell soon after refinancing, especially if you were well into paying off your original mortgage.

Deciding to Sell After You Refinance

There isn’t a standard answer as to when you should refinance after attaining your mortgage, mainly because it depends on the market’s situation and your financial goals. In the event of a strong decline in interest rates, it would be profitable to react more quickly to benefit from lower monthly payments.

On the other hand, if your plans include moving or selling soon, the refinancing process may not be justifiable in terms of cost and effort. It’s important to deliberate carefully on this decision and consider consulting with a financial advisor. Additionally, keeping tabs on interest rates can alert you to potential refinancing opportunities for saving money.

Don’t Rush a Refinancing Decision

While refinancing might seem like a straightforward way to reduce costs over time, jumping into this kind of decision without enough consideration can be premature. Assess your current mortgage and financial standing in detail, considering the potential savings against the fees and penalties that could come with refinancing.

Author Bio:

Michael Alladawi, CEO & Founder of Revive Real Estate, is a Southern California real estate veteran with a proven track record as a builder, investor, and respected home flipper. Michael created Revive Real Estate to share his industry knowledge and help homeowners maximize their profits when selling their homes. Michael’s passion for his work is as big as his desire to create lasting partnerships. For Michael, it all comes down to how much value one offers, both in business and life relationships.