1. WHAT IS A REFINANCE OF A HOME MORTGAGE?
When a borrower has an existing home loan they may want to:
(a) Lower their monthly payment
(b) Change their current mortgage in terms of:
(ii) Interest rate
(iii) Changing from an adjustable rate to a permanent rate or vis versa.
(iv) Getting cash out of the refinance by taking out some of the equity accrued
2. WHAT ARE THE POSSIBLE ADVANTAGES OF REFINANCING?
a. A borrower can improve their monthly payment
b. A borrower can access the equity in their home with a “cash-out refinance”
c. A borrower can change the terms of their mortgage, by adjusting the years, interest rate or loan amount.
3. WHAT ARE THE POSSIBLE RISKS OF REFINANCING?
a. There are no risks if you talk to a home loan expert and thoroughly investigate all of your options. Or, the risks may be specific to each situation. The only risk is that a borrower would not be fully informed and make a hasty decision, resulting in less desirable terms of a home loan. The best way to avoid this risk is to reach out to one of our home loan experts here.
4. WHEN A HOMEOWNER/BORROWER SHOULD NOT REFINANCE:
a. If you have been paying on your mortgage for a long time, you are likely paying more on the principal loan amount. You see, when a borrower first pays on their loan, the bulk of the monthly payment goes toward interest, not the principal. As the loan matures, your payments may stay the same, but the percentage of payment toward principal goes up and the amount toward interest goes down. This is a good point to discuss with your home loan expert at Whitley Mortgage Associates, Inc.
b. If the current mortgage has a prepayment penalty, you should investigate.
A prepayment penalty is a fee lenders charge for paying off your loan early. This includes refinancing. It may still benefit you to refinance your loan, but you should assess the extra time it will cost to pay off this penalty against what you expect to gain in monthly savings with a home loan expert here at WMA.
c. If you are planning to move soon the savings from lowered monthly payments might not be enough to counterbalance the costs of refinancing. Talk to a home mortgage expert about your specific situation.