When Should I Refinance a Home?
Refinancing a home is generally done when it makes you better off financially. The most common reasons would be to lower the interest rate of the borrowing (therefore the loan will cost you less over the long term) or to shorten the period of the loan. You might even be able to achieve both at the same time.
However, there are also other reasons why refinancing might be something to consider.
Alternative Reasons Why You Might Consider Refinancing Your Home
- Accessing equity
- Your credit rating has improved
- Getting rid of mortgage insurance
- Other considerations
Accessing equity
There are multiple scenarios when you might want to release some of the equity in your home. This can be one of the cheapest options if you need to borrow money, costing less than a regular bank loan or other lending option. Some cases where you might want to refinance to release equity include:
- You want to make significant improvements to your home.
- You want to purchase another property.
- You have another large-scale purchase to fund.
If the idea behind refinancing is simply to access the money, rather than changing the terms of the borrowing (interest rate or term), then the best options might be a Home Equity Loan or Line of Credit borrowing.
Your credit rating has improved
If your credit rating has improved since you originally took out your home loan, you may well be in a great position to refinance. Credit ratings have a dramatic effect on the amount of interest you pay—not to mention how much you can borrow. If you can renegotiate a deal where the interest you pay over the term reduces by even .1 of a percent, this will mean you pay significantly less over the lifespan of the mortgage or borrowing. However, you must factor in any fees for closing out one loan and taking out another.
Getting rid of mortgage insurance
Some kinds of home loans come with substantial mortgage insurance costs. An FHA loan, for example, requires you to pay anywhere between $800-$1,050 per year for every $100,00 borrowed—and this is generally for the lifetime of the loan. That equals a huge sum of money over time. If you’re in a position to refinance and get a non-FHA loan, then this could come with a large financial benefit.
Other considerations
Some people refinance to change from a variable rate loan to a fixed, or vice versa. There are many reasons why you might want to do so. Perhaps you want the stability of knowing your monthly payments won’t change over time, no matter what the economy does. Or, if you’re planning on selling your home in the not-too-distant future, you might want to look at changing your fixed-rate deal to a variable one (if the conditions are favorable). This might reduce your monthly outgoings in the short term. However, be aware that such a move comes with the risk that—should plans change—you might not be able to lock in at such a good rate in the future.
Looking for an Alternative Lender? Contact BRRRR Loans and Let’s Discuss the Art of the Possible
Refinancing a home isn’t always as cut and dried as it should be. There are a gazillion reasons why you might want to do so—including if you have a second property or you’re looking to free up some equity to invest elsewhere.
Perhaps you need a bridging loan? Maybe you want to begin a property investment journey. At BRRRR Loans we can help you understand further funding options outside that of regular bank lending.
Head to https://www.brrrr.com for more info and call us today for a no-obligation chat.
Buy, Rehab, Rent, Refinance, & Repeat. A nationwide direct lender to real estate investors. If you have a project that needs to be funded, you’ve come to the right place.