Pros and Cons of Refinancing Your Home Mortgage
If you’re new to the mortgage world or just haven’t ever refinanced, you might not know what the benefits of refinancing a mortgage are. Refinancing can be one of the best financial decisions you make for yourself and your house, or it might not be right for your specific situation. Take a look at these pros and cons of refinancing your home to better decide if a refinance would be best for you.
Advantages of Refinancing
- Lower Interest Rate. The biggest reason why anyone chooses to refinance is because they can get a lower rate on their home loan, and the interest rate makes the difference between an affordable home loan and a mortgage that makes you feel like you’re drowning every month. Luckily, now is a great time to get a lower rate. Interest rates for home loans have been at an all-time low recently, especially for VA loans. So if you are considering doing a refinance, don’t wait to get a quote.
- Improved Loan Terms. Interest rate isn’t the only thing you can adjust on your loan through a refinance. Through all of our refinance options, you can shorten or lengthen the term of your loan in order to adjust when you will pay it off and how much you will owe in monthly payments (a longer term will lower payments while a shorter term will raise payments).
- Switch Rate Plan. If you financed your home with an ARM (adjustable-rate mortgage) and find that you do not like how your rate fluctuates each year, you can switch to a fixed rate plan with a refinance. This can also be done in reverse, or you can switch to a hybrid ARM, which allows you to enjoy the benefits of both rate plans.
- Extra cash in your wallet. With a refinance like the cash-out, you can borrow more money on top of your mortgage, and that goes straight into your pocket to use in whatever circumstance you need it. The amount of additional money you are permitted to borrow depends on how much equity you have built up.
Disadvantages of Refinancing
- Recuperation Period. When refinancing, you must pay closing costs again, and it could take a few years for you to save enough money from your lowered interest rate for the amount you paid in closing costs to be worth it. In other words, you’ll have to live in the same house for a few years in order to recoup those charges. And the VA even requires that you must recoup your closing costs within 36 months if you want a VA IRRRL. If you won’t, lenders aren’t allowed to refinance the loan.
- Additional Fees. It’s important to calculate how much fees will cost you with the new refinance. It’s possible that the amount of fees will be offset by what you save, as mentioned above. However, remember that with a VA refinance, many of these fees will not be charged and you can usually finance these charges into the amount of the loan.
- Paperwork. With almost all refinances, you must fill out a large stack of paperwork in order to start and finish the loan process. If you don’t have much time to sit down and gather all the necessary items, this could be more of a hassle than you need. There is one notable exception to this rule: the VA IRRRL. With this option, the process is streamlined, so there is very little paperwork for you to fill out.
With a VA refinance, many of the cons of refinancing are eliminated and refinance benefits are even greater. Of course, the best way to know if a refinance is right for you is to talk to a professional. Call now to speak with one of our loan officers and get a quote or an application to get started.