The home you own and its attached mortgage are both a big responsibility to you financially. But with the right planning, research, and refinance when necessary, you can get the most out of your loan options and save money over the long term. The following provides you with recommendations to refinance your home mortgage this season.
Know Your Home's Equity
One of the first areas you will need to research in your mortgage refinance process is the amount of equity that is in your home. This amount may be greatly more than you realize based on the amount of market home price increase, so don't always evaluate this figure on your mortgage pay down. The amount that you have paid toward your home's existing mortgage could be $20,000, for example, but the market prices in your area may have increased your home's value by an additional $70,000 giving you an equity total of $90,000.
Make sure you request a professional appraisal of your home to evaluate its equity growth from market changes and your mortgage balance. This is usually going to be required by your mortgage lender, so make sure you arrange this when you begin the refinance process.
Understand Your Options
When you start the mortgage refinance process, talk to the lender about how much equity you can use to borrow against your home, as there may be certain requirements on the new loan. Many mortgages will allow you to only borrow against a certain amount of the home's value. So, they may have you leave some equity untouched in your home as protection against the lender.
A mortgage refinance is going to provide you with access to extra funds to pay for other expenses or debt, but it is also a good way to take advantage of a lower interest rate. When you originally acquired your mortgage loan, interest rates may have been much higher, requiring you to pay more in interest with each payment you make. When you lower the interest rate with a refinance, your required payment will be lower with less of the payment going to interest. You can essentially have a lower mortgage payment while still having the option to pay more each month and have that extra cash go directly to pay down the mortgage principle. When you follow this practice with your new mortgage refinance, you have the ability to pay down your mortgage much faster and allow your payments to work harder for you.
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