Many South Carolina homeowners mistakenly believe that the only reason to refinance a mortgage is to decrease their monthly payment. This is certainly a reason to consider refinancing, but there are many other reasons why refinancing can be beneficial. Homeowners who are considering refinancing should review their options thoroughly. Even if refinancing allows you to immediately reduce your monthly payments, it could end up costing you money in the long run. At Lucey Mortgage Corporation, we take the guess work out of refinancing so that you know you have made the best decision.
Refinancing an existing loan can allow a homeowner to:
- Obtain a better interest rate to either lower payments or reduce a loan term
- Reduce monthly payments in exchange for an extended loan term
- Consolidate debt into a single loan
- Switch from a variable-rate loan to a fixed-rate loan
- Take advantage of home equity to acquire cash
People often begin to take a look at their refinancing options as interest rates improve on the market. There is an old rule of thumb that says if you can decrease your interest rate by at least 1%, refinancing is a good decision. Of course this is just a rule of thumb and each individual’s unique situation needs to be considered.
Prime candidates for refinancing are those homeowners who plan to stay in their current homes for an extended period of time. Any homeowner with plans to relocate in the near future will need to take a closer look to see if refinancing will be beneficial. When you purchase a home, closing costs need to be paid. These closing costs also need to be paid when refinancing an existing mortgage. Closing costs can be a significant expense which can impact your decision to refinance. For example, if closing costs are $5,000 and you save $200 a month by refinancing, you will need to remain in your current home a little over 2 years recover that money. If you save only $100 per month, you must stay in your home at least 4 years before recovering those same costs.
Homeowners will also want to consider how much longer they have left on their current mortgage. If you have already invested 10 years into a 30-year mortgage, refinancing into another 30-year mortgage means you will of course have an additional 10 years of mortgage payments. It is important for many homeowners to no have a mortgage payment after retirement.
Streamline refinance programs are available to homeowners with certain government-backed loans such as FHA or VA loans. Streamline refinances are simple, fast, and only available if refinancing will provide the borrower with a “net tangible benefit.” In other words, the refinance must save the borrower money in order to be approved. This is important when it comes to removing uncertainty and doubt about refinancing.
Homeowners often need cash for home repairs, renovations, and other various needs. Those with equity in their homes can take advantage of cash-out refinance programs. Cash-out refinances allow you to refinance your remaining mortgage into one of a higher amount. You receive the difference between the two loan amounts in cash. Home equity loans serve a similar purpose but are far less common and involve creating a second loan on top of an existing mortgage. Cash-out refinances are a true refinancing of your existing mortgage.
Lucey Mortgage Corporation specializes in South Carolina refinance loans throughout Mount Pleasant and Charleston. Whether you are looking to lower your monthly payment, or need cash to make repairs to your home, we are here to help. To learn more about your refinancing options, contact Lucey Mortgage Corporation today.