When you buy a house with a mortgage, it’s usually a 30-year long financial commitment. But a lot changes in a house over the course of 30 years. The same terms and conditions on a mortgage that worked for your situation at the start of your mortgage might not be the best deal five years in. There are several reasons to refinance your home, but these five are the most common.
Switching from FHA to Conventional
FHA loans are amazing resources for new homebuyers. However, because there’s such a smaller down payment than a conventional loan, there are a number of other fees and other interest rates that go into them that make them more expensive over the course of the loan. It’s likely that switching from a FHA to conventional style mortgage can save you thousands of dollars.
Most likely the interest rate you pay on your mortgage is one of the biggest factors you considered when you got your initial mortgage. And there were lots of ways this could’ve played out: locked in on a low rate, locked in on a high rate, or in a flexible rate that left you paying something different month to month. Interest rates have been very low, and refinancing from a higher interest rate to a lower interest rate can save you thousands of dollars over the life of your loan.
Adjust mortgage span
Most mortgages are a set 15 or 30 years, and that works for a lot of people. There are lots of reasons someone could want to extend or shorten the length of their mortgage. Shortening the mortgage means paying less in interest overall, but you’re paying more out of pocket each month. Or in refinancing you could reset the timer on your loan and decrease your month to month payments.
Several types of mortgages come with quite a few assorted fees. The most frequent one people refinance to get away from is the Private Mortgage Insurance (PMI.) This is a small fee that is attached to your mortgage every month, typically if your down payment was less than 20% of the mortgage total. And that fee adds up quickly, a PMI of $100/month turns into $36,000 over a 30 year mortgage. Later it may be possible to refinance your mortgage and get one that lets you drop that extra fee.
Cash-Out for reno
Want to make changes to your home but not exactly flush with handy cash? When you refinance your home you can opt for a cash-out refinance that leaves you with the money to make those changes. For a cash out refinance, you take out a new mortgage for more than you owe on your current mortgage (but less than your house is worth) and your new lender gives you that difference. It’s especially helpful if your house has gone up in value already.
Ready to close?
At Frank B. Pallotta Law we have more than 20 years of experience helping our Georgia clients navigate the closing process. We understand that each client is different, each situation is different, and that you need our full attention. Reach out to us with your questions. We’re here to demystify the closing process, one question at a time.