Refinancing 101: What you need to know

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If you are a landlord, you know that ownership has its advantages but also its challenges. Although owning a home is generally considered a smart financial decision that allows you to build capital and diversify your investments, mortgage payments can be expensive, especially when you consider other homeownership expenses. to the property.

Almost all homeowners are faced with the decision to refinance their mortgage at least once during their loan. But what does refinancing really mean? And is it a good idea for you and your family? Refinancing a mortgage can be a great idea in some situations, but shouldn’t be seen as a panacea for lowering your mortgage payment. A few basic facts about refinancing will help you decide if this is the right step for you.

What exactly is refinancing?

Basically, refinancing is replacing your existing mortgage with a new one. This means that you will probably get a loan with a new term and a new interest rate. This is why many people choose to refinance when interest rates are low – they want to take advantage of market conditions to pay less interest on their loans.

When is refinancing a good idea?

As with all financial decisions, refinancing a mortgage depends on your situation and you should always discuss it with a trusted financial professional. But generally speaking, it may make sense to refinance when interest rates are low if you have good equity in your home, if your credit score has improved or if property values ​​have increased.

How much does refinancing cost?

Refinancing costs vary depending on several factors, but in general, they can cost between 3% and 6% of the principal of the loan. In addition, an appraisal and title search is required, and closing costs and filing fees will apply. Make sure your potential savings are greater than these costs to make sure you’re really saving money.

What are the risks of refinancing?

Refinancing can save you money or provide you with cash flow to invest in home renovations, but it comes with some risk. For example, like an original mortgage, you have to pay closing costs for a refinance, which can sometimes run into the thousands of dollars. Pay attention to these costs versus your expected savings to see if the financial reward is worth it.

How do I know if refinancing is worth it?

In general, you should try to get a fixed rate of 1-2% lower than your existing one interest rate to make refinancing worthwhile. Also, the value of your home should have increased recently, as a lower appraisal could negatively impact the terms and rates that lenders offer you. Generally, your home should be worth more than what you owe on your current mortgage.

What about tax implications?

Many homeowners use a common tax deduction called the mortgage interest deduction, which allows them to lower their federal income tax bill. If you reduce the amount of interest you pay, your deduction will also decrease. At the same time, if you increase your loan amount by withdrawing cash, for example, your total interest amount will be higher. Consider your situation carefully before making a decision.

Refinancing can be a great way to lower your costs and access more money to do renovations or invest in other ways. But it is essential to remember that refinancing should depend on your individual financial situation more than on market conditions. Carefully consider all the factors and options before committing to a refinance to make sure it’s the right choice for you.

Finance FYI is presented by 1st Security Bank.

AT Washington’s 1st Security Bank, we take a personalized and personal approach to your financial well-being. We live in the communities we serve, so our branches offer tailored solutions to their communities. We believe relationships make the difference, which sets 1st Security Bank apart.

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