Top 5 Factors to Consider When Refinancing
05/16/2022
Your goals change as you move through life – and your mortgage loan can too. Refinancing is when you replace your existing mortgage with a new one. It can give you different options that suit your current needs. However, like most major decisions, there are several aspects to weigh before jumping into the process.
Factors to Consider
Home Equity – When your home is worth less now than when you bought it, called negative equity, it’s not a good idea to refinance. Luckily, in 2021, real estate equity increased by more than $3.2 trillion in Q4 2021, an annual increase of 29.3%1. This means the average yearly gain for a borrower was around $55,000, or two times the growth of 2020. Chances are that your home is worth more now than ever before and refinancing is in the cards.
The Upfront Cost – Although refinancing can save you money in the long term, it’s important to remember the upfront expense. Typically, borrowers can expect costs between 3% and 6% of the total loan amount. However, many can find ways to reduce costs or wrap them into the loan.
How Long You Will Be in the Home – A tipping point will come where your monthly savings will cover your initial costs by refinancing if you stay in your home long enough. For example, if it costs you $1,000 to refinance, but you are also saving $100 a month with the change, it will take ten months to recoup that money and start seeing the savings. In this scenario, if you plan to move or sell your home within the next ten months, it may not make sense to refinance.
If Will You Qualify – Like a home loan, you will need to qualify to refinance your home. This means a lender will go through your income, assets, credit history, and more. Your home will also go through an appraisal, so make sure to get all your documents together and get the house looking its best before jumping in.
How You Will Use the Money – While it’s common to refinance to get a lower rate on your loan, it’s also common to cash out your equity and invest that money back into the home itself. Looking to finally remodel the bathroom, build a new addition, or even put money towards an investment property? The cash-out option would be perfect.
Talk to an Expert
While these are just a few factors to consider before refinancing, there may be others that are specific to your situation. That’s where we can help. Talk to an Atlantic Mortgage Expert to get a second opinion or start the process today! When it comes to loans, our mission is to say “Yes!”.