We all have to make financial decisions to grow our overall savings. Sometimes these financial decisions harbor a specific risk that we don’t know yet at the moment. However, knowledge can help you nullify that risk, especially regarding mortgage refinancing. If you’re planning to refinance your mortgage this year, read on, so you’ll know what you’re getting yourself into.
What is Refinancing?
First, let’s talk about mortgage refinancing. Mortgage refinancing is the process of paying your previous home loan so that you can get a new one. It’s that simple, but some intricacies surround refinancing.
It’s important to know that refinancing will cost on average about 4% of the loan’s principal. Your refinancing will also depend on the appraisal of your home, so make sure to keep it maintained to get the best refinancing option on the table.
Now that’s out of the way, let’s talk about the reasons why you should refinance your mortgage this year.
Can You Decrease Your Interest Rate?
The very first thing you should consider is whether your overall interest rate will decrease through refinancing. This is often the main reason people refinance their mortgage, and it should be on top of your mind.
Currently, mortgage rates are at an all-time low due to the pandemic. But there’s a good chance that it won’t stay this way. Mortgage forecasts have shown a degree of unpredictability in today’s market. But overall, right now is an excellent time to refinance since interest rates will be low until the next quarter of this year. So it’s time to visit your local lender and see what deal you can come up with them.
If ever you can’t decrease your interest rate, you should at least consider other options. Ask your local lender if you can shorten the time you need to pay for your mortgage. For most people, this is incentive enough to refinance, and it should be a good enough reason for you as well.
Are You Planning to Purchase a New Property?
Mortgage refinancing and the purchase of new property come hand in hand. If you’re planning to purchase a second home this year, you can opt for a cash-out refinance, which you can use as a downpayment for your second home-no need to worry. Even the top real estate developer allows this option. So if you find a home in a well-developed neighborhood, you can use this option to purchase your dream home.
However, take caution in doing this strategy. Most people who do this usually have paid off most of their previous mortgage. There are two reasons for this. The first reason is that they only need to worry about one mortgage to pay, which is the refinanced mortgage. The second reason is that the more you pay off your first mortgage, the higher your cash-out. Remember that your cash-out relies on your home equity, and your home equity is equal to how much of the mortgage you’ve already paid.
We suggest that you only purchase a new property through refinancing if you’ve paid about 70% of your previous mortgage. Moreover, if you plan to sell your first property, you can get more profit. This is an excellent start to your real estate empire and one we suggest you do this year if you can.
Are You Starting a Business?
If you’re planning to start a business this year, then refinancing your mortgage is one of the ways you can fund it. Many landlords start from a refinanced mortgage, and it makes sense since you can purchase multiple properties in two decades or so. However, you can also choose another business that’s separate from real estate.
However, remember to put your refinanced mortgage into your accounts. Essentially, if you’ve purchased a private property, the balance sheet should state that you own it and not the business. But the money you get from your refinancing can go into your business’s funds.
Are You in Dire Need of Cash?
Lastly, we come into cash. Cash can be pretty hard to gain during the pandemic, and if you’ve been laid off but you need to pay off existing high-interest debt, then it might be smart to refinance your mortgage.
Mortgage rates are known to be lower than credit card rates and other loans out there. This means that they are an attractive option for paying debts that have high interests. Overall, it’s a good way to save money as you can save yourself from that existing debt.
If you say yes to at least two or three of the arguments above, then it’s a good time to refinance your mortgage this year. If not, then maybe wait for next year, and ask yourself the same questions again.