If you are new to refinancing, then many parts of the process might seem more intimidating than they truly are. To start, you should have a better understanding of how mortgage refinancing works. Putting it simply, refinancing is a transaction that essentially involves trading your old mortgage for a new one.
What happens when you refinance is your bank pays off your previous mortgage using the money from your new mortgage. There are many benefits to doing this, most notably to save money or to change the terms of repayment.
4 Common Mortgage Refinance Myths
Some people believe that refinancing is always a bad decision and while it can be, there are also plenty of situations where it can be a financial game-changer. More information will certainly help you make a more informed decision, so in this article, we will be dispelling a few myths that may be leaving you with a bad impression of refinancing. Take note!
- Refinancing means a longer loan term. Refinancing can sometimes mean a longer loan term, but not always. Even if it does, is that always a bad thing? When properly executed, refinancing helps you save money by offering you a lower interest rate on the outstanding balance. Even if you were to pay the same amount every month, more would go towards the capital balance and less would be made up of interest, meaning that at the end of the day, you stand to save tens of thousands of dollars!
- The “lowest rate” you got on your first mortgage is the best rate you’ll ever get. The current market may not be the same as it was when you got your first mortgage. Your situation also could have changed. Even if you got the best rate you could at the time, there is a possibility that you could get a better deal with a refinance. Whether it’s because the economy has shifted or your creditworthiness has risen, consider a refinance if it gives you favorable terms.
- I can’t refinance with less than 20% equity in my home. Some people believe that you must have a minimum of 20% equity in your home prior to seeking a refinance. It’s true that more equity increases your chances, but if you have a good credit score, you may be able to refinance anyways. You’ll likely need to pay mortgage insurance but if the benefits are worth the cost, it could be a good move!
- Refinancing reduces the equity I hold in my home. No, you aren’t going to lose your equity if you choose to refinance your mortgage. The only way your equity can be affected if you were to add to your loan principal with a cash-out refinance. Since you will be removing cash from the home equity that you have already acquired, it’s logical to expect a lower equity. With a normal refinance, however, the equity you hold in your home will not be affected.
Refinancing in Detroit with The Mortgage City
Refinancing is not always the best move for everyone, but in certain cases, it’s the best thing you can do for yourself. It’s important to carefully evaluate the terms and compare them to your current mortgage as well as your future financial goals. If you need help, seek the aid of a licensed mortgage consultant.
The Mortgage City is a licensed mortgage originator based in Detroit. We are dedicated to helping our clients make the best out of conventional loans and other financing options so that they can plan for their long-term goals. Call us at (248) 930-8709 to find out more about how we can help!