The rise and decline in the real estate industry and industry have shown shifts we never expected throughout the year. The never-ending rise and fall of the demand, whether the ongoing pandemic, allows scarcity or abundance in properties and business opportunities. With that being said, the next question is, what should you do with your existing property?
In its simplest form, refinancing is the process of changing the terms of your current mortgage to maximize your profit. The truth is, with the current status of the real estate market, interest rates are at their lowest. The concept or action of refinancing will offer a higher return. You may be wondering, will this provide me with an additional loan? The answer is no; refinancing will omit your first loan and provide you with a new one.
How To Qualify For Refinancing?
The first step would be to find a lender to refinance your property and get their approval. Once done, you can discuss terms on payments that you would both agree on. However, before you get into that, you would need to place your claim of being qualified for the act of refinancing. This can be done by proving that you have been diligent and religious in paying off your current mortgage with at least 12 months done.
You must also have an equity of at least 10-12% to prove your qualification further. Lastly, your credit scores and income must be at par with regular paying employees.
Should you not have enough to qualify, there are lenders out there who are willing to shoulder the cost with terms that may fit your needs. So you may be able to get that property refinanced at any point in time; you just have to do the digging and research to do it.
Before we get into the nitty-gritty advantage and overall benefits of refinancing, we should discuss when you’re supposed to do it. The best wake up call would be the idea of your current mortgage is not making a desirable impact in your life. Refinancing can assist you through an added interest that will boost your profit. The moment that you realize that you aren’t getting what you deserve, then it’s about time to start refinancing.
Make sure that the decision to refinance your property will not add to your loss. You initiated the concept and idea of it to improve your current situation and not make it worse.
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Let’s take a look at 4 of the main categories that will serve as signs to refinance your property:
An Adjustable Rate Mortgage
The advantage of maximizing Adjustable Rate Mortgage with your bank or lender is it serves as an avenue to let interest rates become beneficial rather than an added cost or loss. Also, an adjustable-rate mortgage allows you to utilize a fixed rate in comparison to what is currently fluctuating in the market today.
More Than 15 Years Of Mortgage
With a mortgage of a 30-year term (or more), refinancing may be the ideal option for you. Creating a 15 year fixed mortgage will give you up to 25% of what you can take home. Isn’t that a great reason to invest in such an endeavor?
However, consider that if you pay a current mortgage that is fixed with a 30-year term and shifting it to a shorter period, such as 15-years, you may want to avoid refinancing at this rate. It’s because you have to think about the payment scheme you are about to get into before deciding. If the cost would be higher in the shorter term, this may not be the best option.
In a general sense, think about how to own your home rather than the other way around. Run the numbers through a calculator and check how you can maximize a shorter term to see where you are at with regards to your current mortgage
Your Loan Has A High-Interest Rate
If your interest rates are higher than what is provided in the current market, then refinancing would be the best move for you. This is because it would lower your rates at a faster pace shortening the overall repayment of the loan for your property.
If you can find an offer that will reduce your interest rate up to 2%, you already found a good deal. You must also calculate your losses or analyze your break-even calculations before doing so. This is to avoid expenses after closing costs. Remember, refinancing is only an option if you would stay in your current property for a long time, making it possible to have ends meet.
If your Second Mortgage Is Higher Than Your First One
Some homeowners and real estate investors assume that tackling the concept of refinancing with both their first and second mortgage would be a good idea. However, if your second mortgage is half of your annual income, then you may want to reconsider your options. The reason being that once you refinance both mortgages, you may plunge deeper into debt. Not unless your balance is higher than your annual income, then you may do so.
It’s because if your second mortgage is higher than half your annual income and you choose to refinance your property, it puts you in a stronger position to handle and approach your debts. You may, if by any chance, get to pull off both mortgages should you refinance the second one.
Now let’s get into the reason why you should refinance your mortgage!
Again, as mentioned in the previous paragraphs, refinancing should be your best bet if a shortened term will provide you ample room to pay it off sooner at the most affordable price possible. Of course, with a minimal increase in interest to at least cover losses. The savings you can earn from these rates compared to a stagnant form of payment will help you get rid of the financial issues you are currently facing.
Refinancing provides you with an avenue to take control of your monthly bills. The concept and idea is not an option if you would just drown in debt. Always think about calculating your progress before stepping into such an adventure.
Remember that refinancing is not the only and best option to increase your profit or decrease losses. There are instances wherein after a mortgage or property is refinanced, the homeowner such as yourself would lose more than they could afford. This is why we discussed the previous notes on when to start or initiate the process of refinancing.
Overall, it would be best to calculate the entirety of refinancing and maybe get professionals’ opinions before diving in. This is due to the idea that you want to progress with your current mortgage should you have more than one, or at least earn minimal interest with the current market. Once the act of refinancing is done, there is no turning back.
We all want to make it through this ongoing pandemic; we all want to omit our debts, especially regarding the homes we are staying in. Remember to seek advantageous options, do not just make decisions out of a whim that could cost you more than you could chew.
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Disclaimer: The blog articles are intended for educational and informational purposes only. Nothing in the content is intended as legal or financial advice.