Did you know that mortgage refinancing has spiked up since last year? Yes, a lot of homeowners have considered refinancing despite the ongoing pandemic.
There are a handful of reasons to refinance your home loan. For one, mortgage lenders provide homebuyers with some flexibility in this option. Surprisingly, they offer lower interest rates now compared to the rates before the pandemic. On the other side of the spectrum, you can take advantage of the opportunity to reduce your interest rate and monthly mortgage payment.
If you’re wondering why refinancing is best during this pandemic, consider the following reasons:
- Lower interest rates
Mortgage investor Fannie Mae has recently cut its interest rate to encourage more home purchases and refinancing opportunities. Also, another mortgage investor Freddie Mac showed a recent drop to its 30-year fixed-rate average. Plus, consider the fact that both investors are dropping their fees on mortgage refinancing.
If you’re looking to lower your interest rate, now is the best time to do so. With the drop in interest rates and removal of refinancing fees, you can significantly save up on your mortgage.
Also, you can consider refinancing your home loan as a way to switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage. So when it comes to home refinancing during the pandemic, better strike while the iron is hot.
- Monthly payment reduction
One of the primary reasons to refinance a mortgage is to reduce the monthly contractual payment (MCP). Doing so makes sense during this ongoing pandemic. If you can no longer keep up with your monthly obligations, home refinancing is a viable solution.
But before you take the plunge into home refinancing, be sure to get and work with the right mortgage company. When looking for a prospective lender, take the following key steps:
- Shop around for prospective mortgage lenders
- Search online for potential lenders or get some referrals from family and friends
- Look for the best mortgage rates and loan terms
- Double-check your current finances and set your budget
- Ask for the mortgage rates and refinancing-related fees involved
- Settle for a refinancing mortgage deal best suited for your financial goals and circumstances
- Shortening or increasing loan term
Another reason to refinance your mortgage is to either reduce or increase your loan term. For the most part, the homebuyers’ primary goal is to pay off their home loans the soonest way possible. But on the other hand, some are looking to extend their loan term to lower their monthly payments. Whatever your reason is, know that refinancing is your solution to making changes with your loan term.
- Private mortgage insurance removal
If you get a conventional loan offered by a private lender, you will most likely have Private Mortgage Insurance (PMI). For the uninitiated, PMI is a type of mortgage insurance you’re required to pay as part of your MCP. However, this is a protection for the private lender—not for yourself. In case you default on your loan, this will cover the financial losses of your lender.
Unfortunately, PMI can hurt your pocket. That’s why a lot of homebuyers are looking to eliminate this mortgage insurance. When it comes to PMI removal, refinancing can be your best option. Just be sure to opt for a non-conventional loan this time. Non-conventional loans such as FHA, VA, or USDA mortgages are backed by the government. As such, you won’t have to pay for a PMI.
- Home equity
Home equity is the difference between your property’s current value and your outstanding balance on your home loan. If you have $100,000 on your mortgage loan and your home is worth $150,000, for example, you have $50,000 of equity in your home.
That said, you have the options to borrow money against your home equity. These options include a home equity loan (a second mortgage) and a home equity line of credit (HELOC like a credit card used and tied to the equity).
The last option is a cash-out refinance. You can refinance for more than what you owe on your mortgage and receive extra cash with this option. You can use this money to get by during this pandemic.
It’s best to consider refinancing your mortgage during this pandemic. By doing so, you’ll lower your interest, reduce your MCP, shorten or increase your loan term, remove your PMI, and get cash on your home equity. Just make sure to get the best mortgage refinancing deal and work with a highly reliable lender. Despite the ongoing pandemic, why won’t you grab this opportunity?