Refinancing your mortgage is a great way to finance improvements on your house or property. Before you start the refinancing process, you first need to outline all the home renovations to be done. Whether it’s a roof repair, a new kitchen, or a bathroom overhaul, your plan should include the estimated cost of the upgrade, and the price you expect to increase will increase the price of the home.
Home improvements can be very costly, so a lot of homeowners look at refinancing as a means to finance them. Mortgage refinancing is a process that involves taking out a new mortgage loan to supplant an existing one. Borrowers typically look for refinance mortgage for the following reasons:
1. Mortgage interest rates fall
2. The borrower wants to change its mortgage type
3. Borrowers intend to reduce the risk of home loans
4. Borrowers plan to fund improvements in houses or property
Currently, many borrowers are choosing to refinance into 15- year loans as interest rates are at deficient levels. Last week, the national average for the 15-year fixed was reported at 4.20%, the lowest on record, according to Freddie Mac. Many of the same costs and procedures that are typically undergone with a first mortgage apply when obtaining a refinancing. Eligibility rules and criteria such as a favorable credit rating, stable income, and a low debt-to-income ratio are fundamental in the eyes of lenders.
Closing costs and related fees are essential things to keep in mind when deciding whether to refinance. A typical refinancing will cost somewhere around 4-6% of the loan amount, with much of the expense consisting of closing costs. To benefit from refinancing, one must stay in his/her house long enough to reach the “break-even” point. This is the point where the money that you save in monthly interest payments covers the total upfront costs of your refinancing. The larger the spread is between your refinanced rate and your current rate, the shorter your break-even point. Therefore, it is usually not a good idea to refinance if:
You have a low balance on your existing mortgage
The value of your home has gone down
If you have already used up a substantial amount of equity in your home

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