4 Benefits of Refinancing Your Home Mortgage

You've probably heard of the word "mortgage," and you know what it means: a financial instrument that lenders, like banks and credit unions, use to make home loans. 

But did you know that your mortgage can benefit you in ways other than making debt payments? Below are the benefits of refinancing your home mortgage.

Convenience and Increase Home Equity

Many lenders offer refinancing home mortgage options. It's really up to you, but once you have decided on a lender, getting prequalified before visiting the lender is the easiest way to ensure that you are getting what you want. 

Many banks have pre-qualification tools on their websites. Just enter your information, and you get an idea about what you can borrow. 

Other terms of the refinance may include an increase in the value of your home, so you can borrow against this equity to take care of other debts. This is known as a cash-out refinance, and you can use it to pay off consumer debt or even finance home improvements.

Lower Interest Rates

The first thing that homeowners consider when refinancing or selling their homes is how much they can save in interest payments. For example, if you pay 5 percent interest on your current loan, you can refinance a new loan with a lower rate. 

Even if the new rate is higher, the savings will be greater. Moreover, the lower payments will leave you with more to save for retirement or other expenses.

Turn Investment Property Into Owner-Occupied Property

If you own an investment property that you want to turn into an owner-occupied property, refinancing a home mortgage may allow you to switch from an investment mortgage to a conventional mortgage. 

This will allow you to sell the investment property and make a profit. If the new mortgage is an FHA loan, you can still keep your investment property and rent it out.

Lower Your Mortgage Payment

You probably pay more than the amount on your mortgage each month. You might also regularly make extra payments on interest or principal, such as when you first move into the home or take out a 30-year mortgage. 

If you decide to refinance, your new lender may agree to lower principal payments to pay off any outstanding balance. This is known as a principal-reduction refinance.

Refinancing your mortgage is a good way to save money on interest, get a lower payment, or even sell your home with little to no down payment. 

It's also a good option if you need money to pay off debts or make home improvements. You can use the money from a cash-out refinance to make some of these improvements.

How to Decide if It's Time to Refinance Your Home Mortgage

Some homeowners decide to refinance their mortgages for various reasons. Since you already own the property, it is easy to refinance it when possible. However, it'd be best to determine the right time to refinance the mortgage. Here are reasons to refinance your mortgage.

Get a Better Interest Rate

Every homeowner wishes to get a lower interest rate on a mortgage. Refinancing home mortgages is an excellent way to get a better interest rate each month and over the loan term. 

It is possible to get a potentially lower interest rate when you refinance your mortgage. This can save you more money in the long run as you clear the loan because it reduces the monthly payment. 

However, it is worth noting that the refinance interest rate depends on various factors such as creditworthiness and your debt-to-income ratio. So, it'd be best to analyze your current situation to help you make informed decisions before refinancing your mortgage.

A Good Credit Score Rating

If you have a good credit score, you can decide you refinance your mortgage because you stand a chance of getting better interest rates. This is a sound basis that determines whether you get the mortgage or not. 

The lender will analyze your borrowing history and decide whether to give you the loan or not. Even if you didn't have a good credit score when borrowing the loan initially, there are high chances that your score increases with time, meaning you qualify for a mortgage refinancing. 

You will be better positioned to get reasonable rates that reduce your monthly payment over the loan term.

Changes in the Loan Terms

When getting a loan, you either get a short or long-term repayment period. This depends on various factors. But the good news is that you can go for a mortgage refinancing and change the loan terms. 

For instance, you can refinance and get a shorter term from 30 years to 15 years. However, it increases the monthly payment and also saves you money in the long run. 

Clearing your loan sooner will also help you build home equity. So, if you can refinance your mortgage for a shorter term, go ahead and do so because it has excellent benefits.

Following the tips above can help you decide when to go for a mortgage refinancing. Doing it at the appropriate time can save you money and many hustles in the long run. Do due diligence by researching the appropriate information before you apply for the mortgage.

What is a Reverse Mortgage and How is It Managed?

A reverse mortgage allows homeowners over the age of 62 to leverage their home’s equity. A reverse mortgage allows an individual who owns their home outright or who has a sufficient amount of equity in their home to withdraw some of that equity without needing to repay the loan until they move out of the home.

Reasons to Consider a Reverse Mortgage

Homeowners who opt for a reverse mortgage are not required to make monthly payments nor sell their homes at the moment. They can continue to live in their home and then repay the loan when they move out of the home or when the borrower dies. Many homeowners use this tool to supplement retirement income. They may use this tool to cover the cost of repairing the home or cover other expenses. 

A reverse mortgage is a tool that might allow seniors to get the money they need without needing to use high-interest lines of credit or other expensive loans. Home Equity Conversion Mortgage loans are popular. These are backed by the federal government.

Requirements for a Reverse Mortgage

To qualify for a reverse mortgage, the homeowner must be over 62 years of age. There are exceptions where a primary homeowner who is over 62 and a spouse who is under 62 could qualify if they meet certain eligibility criteria. To qualify, you must own your home outright or only have one lien you want to borrow against. 

The proceeds from the reverse mortgage must first be used to pay off any existing mortgage on the home. The home must be your primary residence, and you must live there. Homeowners will need to stay up-to-date with their property taxes, legal obligations, HOA dues, and homeowner’s insurance. 

They must keep the property in good condition. The property has to be a single-family home, townhouse, condominium, or a multi-unit property with a maximum of four units. Manufactured homes built after 1976 can also qualify.

How Much Money Do You Get from a Reverse Mortgage?

The answer depends on factors such as the current market value of the home, your age, and the type of reverse mortgage you apply for, including a home equity conversion mortgage, proprietary reverse mortgage, or single-purpose reverse mortgage. The older you are, the higher your principal limit will probably be.

When used properly, a reverse mortgage can be a financially liberating tool. Seniors will need to use caution. They must budget the money they receive appropriately and get the most use out of it.

5 Must-Know Steps to Financing a New Home

Applying for a loan is just one step of many involved in financing a new home. There are several other steps you should take before you sign your loan documents and decide on a lender. Let's look at five of those steps. 

Make a Budget

You don't want to leave it up to a bank officer to decide how much house you can afford. Instead of letting them tell you how much you're approved for and then finding a house that's within that range, you need to create a budget that shows you exactly what you spend each month on bills, groceries, fun, entertainment and miscellaneous expenses. 

Then, start adding in house payments, savings for repairs and maintenance, home and flood insurance, property taxes and revised utilities. 

Then start tweaking your other spending categories until you find a manageable amount for your house payment based on your income. This will give you a guideline for the total amount you can finance. 

Compare Rates

Homeowners need to focus on getting a monthly payment they can afford, but they also want to get a good interest rate in order to keep the overall cost of the house low. Compare rates with local banks, national lenders and credit unions until you find the best deal. 

Check Your Credit

Your credit report and FICO score is going to dictate how low an interest rate you qualify for. 

Before you get financing, check your report for any black marks against you and any incorrect information. Then, work to get your information corrected and your score improved. 

Get a Home Inspection

When you're financing a home, you're making a huge commitment that you're not going to be able to back out of without some devastating consequences. 

Getting a home inspection will not only prevent you from buying a home in bad condition, it can also give you leverage to negotiate the cost down. 

Finance as Little as Possible

When you finance your new home, you will have the option to make a low down payment and wrap your closing costs into the loan. This will essentially increase your loan amount, interest charges and the overall cost of the home.

Financing your home is one of the biggest financial steps you'll take in your entire life. Take on the process carefully and thoughtfully, consult with a professional from an agency like Florida Lifestyle Realty, and remember -- it's up to you to protect your own best interests, not the lender's.

4 Questions Every Borrower Should Ask Up Front About Their Mortgage

When applying for a home loan, be sure to consider the initial costs and interest, as well as the terms and conditions of the loan before signing the contract and close escrow. As a home buyer age 50 or older, it is imperative that you know the terms of your loan before you enter into a contract that is not designed to benefit you. 

As a side note, once you have the basics down, it's simple enough to find a GTA mortgage rate comparison service online, so there's no need to worry about that. Getting the fundamentals down is absolutely vital before locking in a loan, so make sure to do thorough research. 

With so much focus put on interest and monthly mortgage payment, many new home buyers forget to ask the important questions up front. Here are four vital questions to ask after you receive an approval and accept a home loan. 

What are the Costs of Obtaining the Loan? 

Just because the lender offers a competitive interest rate does not mean that the difference of 0.5% interest will offset the initial costs of obtaining the loan. One question all borrowers should ask the lender before accepting an offer for credit is how much are origination fees, discount fees to lower interest, the appraisal, the credit report, administrative fees, document prep fees, closing costs, title insurance, and any other fee the lender charges upfront. 

All lenders are required to provide a Good Faith Estimate, which details the out-of-pocket closing costs necessary just to get the loan. Compare these estimates and keep these figures in mind before making a decision. 

How Long Will It Take Me to Break Even if I Buy Discount Points? 

If you have the option to buy discount points to lower your interest rate, it is important to do the math to determine if buying these points is going to pay off based on the length of the mortgage. When you are buying a new home, the best way to determine if the discount points will really offer you a discount is to divide the upfront cost of the points by the amount you are saving monthly with the lower rate. 

This will show you how many months it will take you break even. You can determine if you will be staying in the house long enough for the discounted rate to pay off. 

Is there a Pre-Payment Penalty? 

Some mortgage loans have terms written into the contract that restrict you from paying your mortgage off early without being charged a pre-payment penalty. A pre-payment penalty is a common term built into a loan contract to ensure the lender earns a reasonable amount of profit in interest for extending credit. 

To prevent a borrower from refinancing as soon as the loan goes through, the lender may charge a percentage of the remaining interest due to borrower to close the mortgage contract. Review how long the penalty is valid and determine if the fee is fair compared to the common fees that other lenders charge. 

How Long will it Take for the Lender to Fund the Loan? 

You need to know the average funding times so that you know how long to lock in the rates. Today, most lenders require you to lock in your rates so that you can avoid falling victim to a sudden rate increase before the loan closes. 

The average funding time frame ranges between 20 and 45 days, but in some seasons funding can take longer. Find out the anticipated turnaround time and how long funding will take to protect your interests. 

When you are applying for such a large loan like a mortgage, you need to look past interest and monthly payments and assess the terms and conditions of the loan. By asking the right questions, you can avoid entering into a contract close to retirement that will not benefit you long-term. 

About the Author: Marley Thomas is a freelance finance and real estate industry blogger. He takes pride in providing consumers with the best research upfront, so they can feel confident in making the right decision for themselves.