Reasons why homeowners refinance their mortgage multiple times
There are benefits to refinancing your home multiple times. Below are some of the reasons why homeowners may decide to refinance their mortgage more than once.
Increase loan term
Homeowners who have refinanced in the past but struggle making payments to their loans may decide to take out another mortgage so they can pay off their existing loans. They opt for a longer term to lower down their monthly payments. The only downside to this is, you may have to pay more on the interest.
Take out lower interest rates
You may consider refinancing your loan when the interest rates have lowered. Remember, you can save hundreds or even thousands of dollars even with just a small change in the interest rate. So long as you don't change your mortgage term, you should save more on the interest.
You want to eliminate mortgage insurance
Was your downpayment less than 20%? Then you were required to purchase private mortgage insurance to protect the lender. You can consider refinancing your home when you have paid more than 20% of your home's equity. It's possible to stop paying premiums for insurance and remove PMI as soon as you have already built up equity for your home, meaning you have paid more than 20% of the loan amount.
Debt consolidation and home renovations
If you want to eliminate debt and have enough equity for your home, opting for a cash-out refinance can definitely help you. By consolidating your debt, there's no need to think about paying different lenders; you can focus on just paying one single debt to make it easier for you. Some homeowners may want to refinance, especially when they're renovating or repairing their homes.
Suppose you're thinking about refinancing your mortgage more than once, ensure that you can pay off your new loan. Also, there are factors to consider before taking on a new mortgage for your home. While you can refinance more than once, it's always best to consider factors before refinancing your mortgage multiple times.
Things to consider when refinancing more than once
Are you thinking of refinancing your mortgage again? Look at these factors to help you make an informed decision.
Closing costs
Unless your mortgage is a no-closing refinance, then you would need to pay for closing costs. Depending on location, the closing costs can be between 2 or 3 % of your loan amount. This can translate into bigger savings, especially when you've refinanced more than once.
Common closing costs you need to pay:
Appraisal fees
Some lenders may ask for another appraisal to ensure that they grant you the right loan amount.
Application and inspection fees
Most lenders would ask for application fees when you refinance a loan. Before approving your home refinance, lenders may also require home inspections.
Legal fees and closing fees
This can vary by location. There are always fees when loans are finalized or approved.
Title insurance
Are you refinancing with a new lender? They may ask you to pay for search fees or title insurance to ensure that you're really the only one who has rights to your home.
Before refinancing, think about how much you would pay for the closing costs and compare them with the amount you take out for the new loan. Is it worth it? Do you need to look for another lender so you can save more? Do your research first so you can save more money with your new refinance loan.
Prepayment penalties
Before finalizing your home purchase, ask whether the lender would ask you to pay a prepayment penalty should you decide to pay off your loan before the term ends.
If you're not aware of this, ensure that you ask them first before taking out home refinance. You may think that you have saved up on interest, thinking that no other fees are involved when taking out another home refinance.
You need to qualify for the home refinance
Because you're taking out another loan, it means that you'll need to qualify for the loan. If you're taking out a loan through banks, it may be difficult to refinance if you have a low credit rating.
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Some homeowners would opt for a private mortgage as they aren't very strict with the requirements or qualifications. Private mortgages often look at your equity and the marketability of your home more than your credit score.
To increase your chances of getting better interest rates, we recommend that you take care of your credit.
Helpful tips to get approved for a home refinance
Are you thinking of refinancing your mortgage again? Here are tips to help you get started and increase your chances of getting approved:
Find out how much equity you've built up
You need to understand your equity if you're planning to take out another loan. Your home's equity is the amount you have paid off—you own this amount, and you can build equity every time you make a payment on your mortgage.
If you plan to consolidate debt, cash-out refinance, or taking some cash out of your equity, it can help. However, you need to remember that lenders will not allow you to take out 100% of your home's equity. Most only allow up to 80% of your equity.
Should you decide to refinance your mortgage again, find out how much equity you have built up.
Fix your credit
Do you know how much your credit score is? Are you always on time with your payments? When you go with banks for your home refinance, they will look at your credit rating. If you have a low credit rating, banks may not approve your loan.
Ensure that you know your credit score before refinancing your mortgage. If possible, fix your credit first. Consider speaking with a professional if you need help with this or go with a private mortgage if you have bad credit and you really need the funds.
Work on your home's appraisal
Your lender will require you to get a home appraisal before granting you another loan. Set a goal for this: your home's current value should be higher than what you have paid for your home. There are ways to help you achieve this:
Dress up your home
Keep in mind that your home's curb appeal contributes to its overall value. If you have funds, hire a professional to help you mow your lawn or fix your driveway. Your property has to look great during the appraisal. Buy energy-efficient appliances or water-saving plumbing fixtures to increase your chances of getting a higher amount for your home. It will be beneficial if you're thinking about selling your home soon.
Do your research
Research homes similar to yours and find out how much they are worth. You can provide this list to your appraiser to know how much the properties are worth in your neighborhood.
Find the best lender
You can take your time in looking for the best lender that offers good interest rates. If possible, work with a professional to help you find a lender that can give you the best solutions for your home refinance.
To get approved faster, respond to lenders quickly, especially when they have inquiries about your home. Please provide them with additional documentation as needed or proof that you can really pay off your new mortgage.
You may also need to hire a real estate lawyer to make the process as seamless and as stress-free as possible.
Why are you refinancing your mortgage?
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