Reasons for FHA Refinancing
November 2, 2021
It may be overwhelming, but many homeowners can benefit from taking a look at their current mortgage and talking to a loan officer about refinancing. Borrowers choose to refinance for a number of reasons.
LOW INTEREST RATES
Interest rates started to decline in 2019 and still seem considerably low. The average rate for a 30-year, fixed rate home loan has fallen from 4.94% in November 2018 to 3.13% in October 2021. A point drop in your interest rate could translate to huge savings with each monthly payment, which is obviously a huge incentive for borrowers.
SHORTER LOAN TERM
Shortening the term of their mortgage is an advantage for borrowers who have some long-term debts and enough money coming in each month to pay the mortgage off sooner. Shorter loan terms typically come with lower interest rates, which is worth the higher monthly payments and borrowers end up saving on interest payments.
ARMS TO FIXED RATE LOANS
Many borrowers refinance their home loans to switch from an adjustable-rate mortgage to one with a fixed interest rate. Such refinances make the most sense when interest rates are low, and probably before the introductory period (a set period of time when the interest rate remains the same) on the ARM ends. Moving to a fixed rate loan gives borrowers peace of mind, since it comes with certainty of what their monthly payments will look like.
CONSOLIDATING DEBT
Many borrowers may choose a cash-out refinance to take better control of debt. By consolidating different loans (such as credit card bills and auto loans) into a one mortgage, they can have a single, fixed monthly payment, which is much easier to manage. Mortgages have lower interest rates compared to all other personal loans, so piling all your debt into a mortgage makes financial sense. Additionally, if it is timed right and interest rates are low, borrowers can also take advantage of market conditions and lower their monthly payment.
IS IT THE RIGHT TIME TO REFINANCE?
Capitalizing on the current market rates might be in your best interest and could lower your monthly payment significantly. However, refinances are at an all-time high and that means lenders are experiencing a huge number of applications, which could potentially make loans slower to process.
Refinancing also comes with closing costs, so for some mortgage holders, it might not be worth the time or money to deal with it. One rule of thumb for refinancing is that you should plan to live in your home long enough to break even. Do the math to see how long you need to reside in the home to recoup the cost of refinancing in the interest you save.
Ultimately, the future is uncertain, and interest rate projections can turn out wrong. However, if you have not had a mortgage review in the past couple of years, it is worth getting in touch with a loan officer to see if a refinance could save you some money in the long run.
------------------------------
RELATED VIDEOS:
Keep Your Eyes on Your Loan Balance
Learn About FHA Loan Prepayments
Taking Out a Home Loan Makes You a Borrower
FHA Loan Articles
September 2, 2021For many first-time home buyers, the FHA loan is a popular option. With its lenient credit and income requirements, it appeals to young borrowers who don’t have an extensive credit history, or enough money saved up for a down payment.
August 9, 2021Many first-time homebuyers need some help understanding and navigating the ins and outs of the mortgage process, and down payments are an essential part of that. A down payment is an upfront installment made on a large purchase while the remainder is paid off with a loan.
July 30, 2021The FHA Streamline Refinance allows mortgage holders to refinance their home loan without going through the process of second appraisal. Since this is a step that was completed with the first FHA mortgage, the FHA waives it for the refinance
July 14, 2021Making the decision to buy a house is a big one, followed by the choice of which house to buy. The next biggest decision you make is going to be the type of home loan you need to go through with the purchase. One option for financing your home is an FHA loan.
June 25, 2021Most first-time homebuyers decide on purchasing a home at least a year in advance, sometimes even a couple of years ahead of time. The earlier you make a decision to buy a home, the more time you have to save up for your down payment.
