Are you considering refinancing your mortgage loan? You might be familiar with claims made by friends, family, and other close by neighbors who say they refinanced their house on several occasions throughout their life. But just how many times is it possible to refinance your home loan, sensibly?
From a technical perspective, you are able to refinance your mortgage as much often as you want, provided that doing so would be logical on a financial basis. But when thinking about financing your home, whether it is for the very first time or perhaps the fourth time, think about the following concerns first:
Will it be wise for you to refinance?
Preferably, you will want to refinance your home loan just one time because refinancing various occasions could reduce your total monetary value you could potentially gain in the future. In the event your initial loan had an adjustable interest rate, you could refinance using a more affordable fixed rate, which is designed to shield you against potential raises on your future mortgage rate.
Keep in mind, refinancing will not repay the existing loan; it simply modifies the existing composition your loan.
How Much Time Have You Been Living Within Your Current House?
When you have been living in your house just a couple years, it generally is not a wise choice to refinance at that time. Considering the fact that you have not been at your house for very long, you most likely have not accumulated a great deal of equity in the home.
Having said that, you also shouldn’t hold off on refinancing for a long time either or you won’t be able to protect your loan’s amortization from beginning again. This will cause any payments you make to be applied to interest rather than the original amount financed for the home.
Have You Built Up Enough Equity?
Equity is a major tool used when refinancing a home. This means people who have not accumulated enough equity in their home should probably wait to refinance. If you absolutely need to refinance your home and have not yet built up any equity, you can still choose a “cash-out” refinancing option instead of using a home equity loan to refinance. With a cash-out refinance, you will be refinancing the loan you already possess and adding an amount larger than your current balance so you can keep the extra funds to do what you wish. Such a type of refinancing option needs to be considered carefully because it could cause you to have a larger monthly mortgage payment and increase your interest rate and may also diminish the amount of future equity of the home.
Are The Fees Affordable?
You probably remember paying fees when you initially purchased your house and took out your current loan. A mortgage loan that is refinanced will have to pay these additional fees again. Such fees consist of:
- Application fees
- Closing costs
- Loan origination costs
Therefore, make sure you will have the funds available to cover these fees before you decide to refinance. The mortgage lender will also want you to supply evidence showing enough earnings and assets to cover all costs associated with the refinance such as:
- Your current credit reports
- Payment history
- Bank statements
- Employer pay stubs
- Tax returns
- Statement of debts and assets
Are You Close To Paying Off Your Mortgage?
When you have almost finished paying your mortgage, you should avoid refinancing if possible. Because you basically are obtaining an entirely new loan when you refinance your home, refinancing will extend the amount of time you have left on the loan. When you only have less than a year or so before your mortgage is completely paid off, you probably don’t want to extend that period any longer.
As always, you should always work with an experienced mortgage broker before you decide to refinance your home. If you are thinking about refinancing your home, contact American Dream Home Mortgage today to discuss your personal situation and help you make the right decision for you.