Key City Lending can help you refinance and get better payments, rates, and terms.
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Refinancing your home loan has been a top topic in real estate for several years, but what really happens when you refinance? Is it to your benefit to go through financial scrutiny again, and does the refinancing have a noticeably positive effect on your budget? When done correctly and at the right time, yes, refinancing is a smart move.
When you refinance your mortgage, you're literally redoing the mortgage at whatever the going interest rate is. Your current mortgage gets paid off, and a new mortgage takes its place. Essentially, you're using the new mortgage to pay off the old, and then your payments go toward the new loan. The differences are that you have a new interest rate, new payment amounts, and possibly new loan and interest terms, such as a fixed-rate mortgage instead of an adjustable rate.
It's vital that you understand that you're not actually paying off your house. You're paying off one loan but getting another, so you'll still have to pay the full cost of your house.
Refinancing your mortgage is beneficial in several ways. If you do it at a time when interest rates are lower than the rate your current loan was taken out at, you can pay less interest over time. If you can make larger-than-minimum payments, you will pay even less over time because you'll pay down the principal earlier. Your new monthly payments can also be lower, giving you the opportunity to save more, or, if you want, you can make the same size of payment as before, but now more of the money will go toward the principal.
Refinancing also lets you avoid ARM shocks. Adjustable rate mortgages were part of the reason why the housing market got into such trouble in 2007 and 2008; many ARMs suddenly shifted from lower introductory rates to higher rates, making monthly payments unaffordable for many homeowners. If you refinance, you can switch to a fixed-rate mortgage, which eliminates the surprise of higher payments. This does mean that payments won't shrink if rates fall, though many homeowners are willing to deal with that for the peace of mind that a fixed rate brings.
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