Home sales have slowed significantly due to buyers not wanting to trade their low rates for higher ones. With the Fed predicting several rate cuts yet this year, we believe today’s rates shouldn’t intimidate buyers, as they can easily refinance their loan in a year or two.
The most popular reason homeowners refinance their mortgage is typically to reap the benefits of a lower rate. However, there are other reasons to refinance that can be beneficial and are worth looking into. One involves switching your mortgage’s type or term, and the other enables you to access funds through refinancing a new loan.
Switch Your Mortgage Type or Term
When you initially purchased your home, you chose the length of time and kind of loan – perhaps you chose a 15- or 30-year term and a fixed rate or adjustable-rate mortgage (ARM). Consider if your circumstances or financial goals have changed since then. Maybe you have an ARM and are anticipating a rate increase, so you would rather switch to a fixed-rate mortgage for rate stability and consistent monthly payments. Or maybe you have a fixed rate already, but the original term was set for 30 years, and you would like to switch to 15 years to pay your mortgage off faster.
Another situation could be that you now qualify for a VA home loan, which offers benefits like no private mortgage insurance and possibly lower interest rates to veterans, service members and eligible surviving spouses. If so, it might make sense to refinance and take advantage of those benefits.
Access Funds
If you have sufficient home equity, you may want to consider cash-out refinancing that allows you to refinance for more than your current mortgage balance. This is different than a home equity line of credit – although this option is still a good fit for many homeowners – in that cash-out refinancing sometimes offers a lower interest rate and replaces your existing mortgage.
In short, there are several compelling reasons to consider refinancing your home mortgage, even if your current interest rate is lower than what’s being offered.
Mortgage Refinancing Process
Before you decide to refinance, learn more about what the process entails.
Step 1: Research and Compare Lenders
Compare reputable lenders and their mortgage refinancing offers. Research interest rates, fees and customer reviews.
Step 2: Gather Documentation
Prepare the necessary documentation, including proof of income, credit reports and details about your current mortgage.
Step 3: Apply for Refinancing
Submit a refinancing application to the lender you choose. Be prepared to provide follow-up information and respond promptly to any requests for additional documentation. The quicker you can provide all the necessary documentation, the smoother the process will go.
Step 4: Appraisal and Underwriting
The lender will typically conduct an appraisal to assess the current value of your home. The underwriting process involves a detailed review of your financial information to determine loan approval.
Step 5: Closing
If your loan is approved, you’ll attend a closing meeting where you sign the new loan documents. At this time, you pay any closing costs, and the new mortgage officially replaces your old one.
Is It the Right Time for You?
Refinancing your mortgage can offer greater financial flexibility and potential savings over time. Contact the Bankers Trust Mortgage Lending Team to learn if refinancing is the right option for you.