Need some additional cash and feel that your only option is to refinance your home? If so, it is important that you do not make the following mistakes during the process.
Assuming Your Home's Value
One thing to keep in mind about home refinancing is that you may think it's a good idea, but you may be widely miscalculating what your home is worth. A home refinance is not based on what you paid for your home in the past. The new value is based on an appraisal from your mortgage lender. This can be both good and bad for a few reasons.
If your home's value when down, you'll end up getting less money than what you think you owed on the home. On the other hand, a lower home value means that you will be receiving less money, which is also less to pay back over time. On the flip side, skyrocketing real estate prices in your area could lead to a higher home value, which will provide you with more money as part of the refinance.
Assuming You'll Receive The Home's Whole Value
If you need $200,000 and think you can get it out of your $200,000 home, you better think again. The cash you receive from refinancing your home will not be for the full value of the home. The lender will place a limit on what percentage of the home's value you will receive in cash. The lender may cap it at 80%, which means you'll only get $160,000 in cash from your $200,000 home.
Assuming A Lower Interest Rate Is Worth Refinancing For
Interest rates may have dropped in your area, but that doesn't mean it will be better for you to refinance from a cost savings standpoint. Many factors play a role in a refinance costing you more money in the long run, even if you are getting a lower interest rate.
For example, the mortgage amortization schedule will start over, so those first few years of the loan will result in paying more interest than principal. You'll also have closing costs on the loan, which do not make it practical to refinance if you recently purchased your home. Work with a mortgage lender to determine when you will break even on refinancing, and determine if you will be living in the home long enough to see the cost savings that will result from it.
Reach out to a company such as Blake Mortgage to learn more.