Trouble making your mortgage each month? Maybe you should consider a refinance. This will help you remove private mortgage insurance, save on interest rates, cash out on equity and manage your overall finances effectively.
Refinancing essentially means replacing your current mortgage with a new one, meaning a new interest rate, new payment, and new terms, all stacked in your favour. The funds obtained from the new loan are used to pay off the existing loan.
The Advantages of Refinancing
- Lower Interest Rate: Assuming you took out your mortgage at a time when interest rates were higher, or your credit score wasn't in the best shape, you’re in a position to save quite a bit from refinancing. For example, a 30-year-old mortgage of $100,000 with an interest rate of 3%, would cost you $51,778. If that rate dropped down to 2.34%, your total interest comes down to $39,267. The difference is a figure of $12,511. Calculate your interest rate here
- Equity to Cash: In a situation where the value of your house has increased since the time you purchased or last refinanced, you can refinance again to cash out some of the equity. This involves refinancing a loan in the amount of your existing mortgage, plus the amount you want to borrow against your equity. As a rule of thumb, you want to maintain at least 20% equity after refinancing.
By cashing out, you can pay off higher interest debts like credit card debts or use the finances to renovate your house.
- Reduce Monthly Payments: In a situation where you are not eligible for a lower interest rate, refinancing to a longer-term and extending the amount of time you have to pay off the loan will decrease the amount you require each month, thus enabling more cash flow. Naturally, this will increase the overall interest payment.
- Pay off Loan Faster: Unlike the above situation, maybe you want to pay off your loan faster. Refinancing to a shorter repayment period, you’ll pay off your debt faster, but at the cost of higher monthly payments. However, you will save a hefty same amount in interest payment.
But what if you’ve already refinanced your home loan? It seemed like the right decision the first time. Maybe you did it again. And you’re tempted to do it a third time, considering the current rates.
How many times can you refinance your home loan? Is it possible to do it over and over again, or do all good things come to an end?
HOW OFTEN CAN I REFINANCE MY MORTGAGE
There is no legal limit on the number of times one can refinance their home as of yet. However, lenders do have restrictions that dictate the frequency of refinancing, which differs from loan type and other conditions. A “seasoning requirement” signifies a waiting period before borrowers are approved for refinancing.
Things to Consider when Refinancing Multiple Times
- Recurring Closing Costs: Unless you’ve opted for a no-closing-cost refinance, you need to pay closing costs to refinance. These include:
- Application fees: Your lender might charge you an application fee when you request a refinance. You need to pay for your application fee whether or not you receive a refinance.
- Appraisal fees: Have you recently had an appraisal? To ensure that your lender is not loaning out too much money, he might require another appraisal before the refinance.
- Inspection fees: You might also need to undergo an inspection to be eligible for a refinance. Inspection requirements also differ, wherein there is an inspection each time you refinance or one every 5-10 years.
- Attorney review fees and closing fees: An attorney’s review is a mandatory requirement to finalize and close your loan.
- Title search and insurance: A new lender needs to know that you’re the only individual with ownership right to your property when refinancing. However, title fee costs are considered to be minimal.
This total expenditure usually comes up to 2-3% of your total loan amount and can quickly cut into your savings, especially if you’ve refinanced before.
- Lender Standards: Similar to when you buy a house, you need to meet lender standards to qualify for a refinance. High debt, low credit score or less income can be restricting factors.
The above conditions highlight the fact that refinancing depends entirely on your financial circumstances. Most people refinance only once in case of a fixed term, usually at the end. On the other hand, at a variable rate, you can refinance anytime to cash out on equity.
Alternatives to Refinancing:
The exuberant costs combined with the waiting period to refinance may not give you an ideal cost-benefit. However, there are other alternatives you should consider.
- Negotiate Bank Rate: In case your sole objective is to lower interest payments, check with your lender if you have the option to lower your interest rate or have your repayments fixed for a specified time.
- Switch to Interest Only: Temporarily switching to interest-only from the principal and interest payments helps free up your cash flow to pay down higher-interest debts or build an offset account, which provides a buffer in case of a hike in interest rates.
- Look for a Stable Source of Income: If you’re looking for ways to get your interest rate lowered and all doors seem to close, consider finding a stable source of income if you don't have one already. Depending on your profession, this might seem like a difficult job, but even a temporary job that acts as a regular source of income can do wonders for your credibility.
There is no one fit for all strategies when it comes to refinancing. It can be time-consuming, expensive at closing, and forces the lender to pull your credit score, and hence isn’t a decision that can be made in haste. However, planning thoroughly will take you a long way. Crunch the numbers and see if refinancing will truly help you pay less interest. Do not be hesitant to reach out to a broker for advice if needed. Deals mortgage can help you find the right answers to your doubts. If you are considering refinancing and still wondering if it's worth it, reachout to our team and we will work closely with you and guide you throughout the process.
Not sure if it's the right time to refinance? Want to know more about getting low-interest refinance options? For any queries or financial consultation, reach out to Deals Mortgage based in Bentleigh East and our team of experts offer professional service that strives to empower you