Robert GaccioneDirector of Commercial Lending
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With today’s low mortgage rates, you may be considering refinancing your home.
There are a variety of reasons that lead many of us looking to refinance our mortgages, however you may not be familiar with what refinancing can do for you. Here are a few changes that motivate people to refinance:
Getting a better interest rate
Change the length (term) of your loan
Convert an adjustable-rate loan to a fixed-rate
Borrowing against the built-up value to pay for remodeling, etc.
The fact is that you can refinance as often as you want, but some lenders look for a waiting period between home loans and appraisals. You also need to have equity to qualify for taking out cash against on your loan. And because most lenders will typically only approve you for 80-90% of your loan’s total value, it can be difficult to obtain more than one cash-out refinance.
However, taking another refinancing route can be beneficial in some scenarios. If interest rates have dropped, you could save thousands of dollars over the course of your loan. Refinancing is also a possibility if you’re facing foreclosure due to not being able to make your payments.
The Rules of Cash-Out Refinances
Cash-out refinances function differently than rate-and-term refinances. Some lenders have a waiting period after the closing date of 6 months before you can take cash out on a traditional mortgage.
If you have a VA-backed mortgage, you must make at least six consecutive payments before applying for a cash-out refinance. You also have to prove that your refinance will provide you with a tangible benefit.
Cash-out refinances are a helpful way to secure the capital you need to renovate your home on a new, low-interest mortgage. This money can also be used to consolidate debt, strength your investment portfolio, or pay for your child’s education.
What to Remember About Refinancing
If you qualify for a loan without private mortgage insurance, refinancing may be a great option for you. However, keep in mind that you will need to pay for closing costs each time you refinance and your loan may come with a payment penalty. You must also meet your lender’s specific debt, income, and credit standards each time you decide to refinance.
While you can refinance your mortgage as many times as you’d like, it’s important to establish objectives and find a solution that meets your unique financial situation. Keep in mind that while a shorter term loan will have a lower interest rate, the payments will be higher because you’re paying it off faster.
At the end of the day, deciding to refinance is simply a matter of running the numbers to determine if it’s right for you. Even if you’ve refinanced before, you still have the opportunity to benefit from refinancing your home again.