Frequently Asked Questions About Mortgage Refinancing
Owning a home is a goal of most people. Once you have a home, however, it is important to continue to work hard to improve your finances and overall position with your home. One common way to try to get into a better financial position is to refinance your mortgage when you are in a position where that would be beneficial.
When is it a Good Idea to Refinance a Mortgage?
Refinancing your mortgage is a good idea if it will be able to save you money in the long run. This is possible when you are able to secure a lower interest rate than your current mortgage has, and then keep the home for a set number of years.
In most cases, if you are planning on moving in the next 1-3 years, it will not make sense to look into a refinance. If you can reduce your interest rate by at least 1% and plan on remaining in your home for a long time, it is a good idea to refinance.
Can You Consolidate Debt with a Mortgage Refinance?
In most cases you will be able to do this if you would like. When you have equity built up in your home, you can refinance an amount that is more than what you owe on the house. That extra money can then be used to pay off credit cards, buy a vehicle, or any number of other things. This is often a great option since your mortgage interest rate will usually be quite a bit lower than any other type of debt.
What is the Difference Between a Refinance and a Home Equity Line of Credit?
Refinancing your home is when you replace your existing mortgage loan with an entirely new loan with new terms (including interest rates). A home equity line of credit is a line of credit that is secured with your home as collateral. Your existing mortgage remains in place and unchanged. The new line of credit will allow you to get money when you need it, but you will have to pay it back in addition to your existing mortgage payments.
Can You Refinance a Mortgage with Low Credit?
Yes, you can try to refinance your mortgage at any time. There are many factors beyond just your credit score that will impact what type of terms you can qualify for. Of course, the higher your credit score, the better the terms you will be able to get for your refinanced mortgage, so keep that in mind.
If, however, your current mortgage has a high interest rate because of the standard rates at the time that you purchased your home, it is a good idea to at least check to see what terms you will get. Interest rates change regularly so it is possible to get a significantly lower rate even if your credit score is the same, or slightly lower, than it was before.
Do You Need a Down Payment to Refinance Your Home?
No. If you have built up any equity in your home, which most people have if they have owned it for even a modest length of time, that would be considered the down payment. You do not have to have any money down for most refinancing. Even the costs of the refinancing can often be rolled into the new loan itself, so you usually do not have to come up with any money at all. This is why it makes sense to at least apply for a refinance to see what type of terms you qualify for.