A refinance and purchase mortgage without proper understanding can give you a hard time making the right choice. Educating yourself about these two options will help you make an informed decision. Refinance mortgage enables you to change your current mortgage rates. A purchase mortgage, on the other hand, refers to the initial funding you use to finance a home that you purchased.
Even if you do not have enough cash on hand, you can still be a homeowner with a purchase mortgage. The overall cost is one of the major differences between these two types of mortgages. Purchase mortgages have more ancillary fees. Thus, their interest rates are higher compared to refinance mortgages. This type of mortgage works for a first time homebuyer who does not yet have a home or mortgage. Keep in mind that these instances will cause the cost of a loan to increase.
When to consider refinancing your mortgage?
You can change the terms of your original mortgage with refinances. This option is advisable for the following reasons:
- You want to reduce your monthly payment. To lower your monthly payment, you either need to switch from a higher interest rate or choose longer loan terms. With the use of a mortgage calculator, you will be able to determine your new monthly payment. You must take the total cost of your loan into consideration when you calculate the figure. Although you cannot guarantee savings with a lower monthly payment, you are still assured of flexibility when you choose to refinance your mortgage.
- Your financial situation has improved. When you initially get your mortgage loan, you may not have established a satisfactory credit score yet. Once your credit score has improved, you can be eligible for lowering your interest rates. The change in rates will depend on your creditworthiness.
- You are planning to fund a new project. A home equity loan is your ticket to financing a new project. Through your home equity loan, you can even take advantage of reduced interest rates. You can also change payoff terms so you will have more flexibility. Another way that you can use your home equity loan is when you want to consolidate debt.
- Interest rates have lowered. Interest rates that have gone down can qualify for mortgage refinancing.
Is there a limit on refinancing your mortgage?
When it comes to refinancing a loan, the good news is that there is no limit. You have an option to refinance the same day you have closed your purchase mortgage. However, you should keep in mind that you must know the best time to refinance your mortgage. In refinancing your mortgage, your interest rate should drop by a minimum of 2%. Before you consider refinancing your mortgage, you need to know the break-even point and the time it will take for you to reduce your monthly payments. You can use a mortgage calculator to understand your monthly payment better. No two financial goals and situation are the same, so you need to assess your ability to pay back the loan you secured before making any changes.
If you cannot decide whether or not you should consider refinancing, working with a mortgage broker will put things in proper perspective. They can guide you in making better choices by laying down the pros and cons of refinancing your mortgage. Aside from being knowledgeable about refinancing, brokers can also assist you by matching you to a mortgage lender that suits your needs. Mortgage refinancing can help you improve your financial situation by reducing the burden of high-interest rates for many years to come.
Cape Coral Mortgage, Inc.
3512 Del Prado Blvd. S Ste106
Cape Coral, Fl. 33904
(239) 540 5555