When Should I Refinance?

Refinancing your home involves paying off your current mortgage and replacing it with a new one that has more favorable terms. This can be a good idea if your current loan’s payments are too high, if it’s too risky or if your credit has improved.

You may have purchased your home at a time when your credit wasn’t the best, and as a result, you received a higher interest rate than what you would get now.

Or perhaps you have found a lender with better loan terms or are considering a cash-out refinance. This involves taking out a new mortgage for more than what you currently owe and getting the difference in cash, which can be used to pay down debts, for improvements and more.

With the housing market being hotter than ever in many parts of the country including Amelia Island, home values have risen dramatically, making cash out refinances popular.

Every situation is different, and ERA Fernandina Beach has provided some answers to some of the most frequently asked questions regarding home refinancing.

When Should I Refinance?

When should I refinance my home?

There are many factors involved with determining the right time to refinance, including your financial goals, debt, current equity, interest rates, and more.

Although there is no limit as to when you can refinance outside of any stipulations that your current lender may have, it can be a good idea to consider refinancing for a better interest rate or loan terms once you have built up at least 10%-20% equity in your home, which lenders prefer to see.

How soon can you refinance your mortgage?

In many cases, you can refinance almost anytime after you get a mortgage, but you will want to check if there is any kind of pre-payment penalty on your current mortgage. This could result in many thousands of dollars in fees.

Perhaps you have found that you are eligible for a lower interest rate, even a few tenths of a point, and that can make financial sense to justify a refinance right away.

Bear in mind you will have to pay closing costs, so it can make sense to build up some more equity so that you have a smaller mortgage when you refinance.

Is it bad to refinance?

The downside of refinancing is the fact that you will have to pay closing fees, which can range anywhere from 2 to 5% of the home loan.

You are also extending your loan once you refinance, which means that you are going to make more mortgage payments than you otherwise would. For example, if you have paid 5 years of a 30-year mortgage, refinancing will reset the timer and require 30 more years of payments.

Despite that, it can often make financial sense to refinance to lower interest rates, for a more manageable payment, or to cash out and invest the money, and every situation is different.

What kind of credit score do you need to refinance your home?

Most lenders recommend a FICO credit score of at least 620 in order to qualify for a refinance. FHA programs can have lower requirements, and government-backed streamline refinancing has no credit score requirement. You may still qualify for a refinance if your score is less than 620.

Is refinancing worth it?

Refinancing can certainly be worth it for many people. Every situation is different, and you will have to meet with your lender to discuss your financial goals and whether or not refinancing will make sense for you at the present moment.

Perhaps you are looking to pay down high-interest credit card debt with a cash-out refinance. Or your credit score may have significantly improved, or current interests are much lower than when you bought your home.

What are the current refinancing rates?

Mortgage rates fluctuate on a daily basis because they are tied to the bond market. To get current refinancing rates, you can always call your lender, and many lenders publish them directly on their website.

Bear in mind that interest rates have been increased by the Federal Reserve in recent months (as of 2018) and that rates are expected to continue to rise, due to economic growth.

What are my home refinance options?

A traditional refinance simply involves replacing your current mortgage with a new one with more favorable terms or a better rate.

A cash-out refinance involves paying your current mortgage, then taking out more than you currently owe and getting the difference in cash. Or, you may want to consider a HELOC, or a home equity line of credit, which is essentially similar to a credit card that uses your house as collateral.

In terms of the specific type of loans that are available to you and which one will work best for your goals, your lender will be able to discuss that best.

Contact ERA Fernandina Beach Realty if you are considering purchasing a home on Amelia Island or for any questions about mortgages and the home buying process here.