Refinancing is something that most adults will think about at some point in their lives. The reasons why homeowners choose to refinance will depend on their personal circumstances. One of the main reasons being because they are no longer able to afford the monthly mortgage payments and are therefore seeking out an option with a lower interest rate. Converting to a fixed-rate mortgage from a floating rate mortgage (better known as an ARM or adjustable-rate mortgage) could ease the financial burden faced by homeowners who are trying to hide from the rate-inflating cloud that looms over them.
Whatever your reasons for refinancing might be, just keep in mind the basics before you take the next step.
Smart Reasons to go Down the Refinancing Route
Do you want to shorten your mortgage? If so, you should definitely consider going down the refinancing route. In your particular situation, an option that could mean paying lower interest rates is definitely a smart move.
Here are some top reasons to refinance:
– Consolidate Debts – When debts pile up, a homeowner can relieve themselves of financial worries by using any equity that has accrued on their home to reduce the debt pile.
– Explore Loan Types – Unless you know exactly what loan options are made available to you, how are you supposed to know which type suits your circumstances? Although interest rates might be lower when you first start contributing to a mortgage with a variable rate, they might spike when you least expect it.
– Adjust Repayment Terms – Falling into a financial predicament is nothing to be ashamed about. Simply take action and prevent the problem from worsening and tarnishing your credit score forever by refinancing. By doing so, you can discover what options are available regarding repayment terms.
Does refinancing have an impact on credit rating?
We could have talked about this in the list above, but let’s go a little more in-depth about refinancing and the way it could influence your credit score. The truth is that your credit score could be positively impacted immensely if you finance wisely. Don’t expect the change to be instant, but do expect it. A good credit will not only make mortgage hunting easier but also, job searches! For this reason, financing is a long-term worthwhile option that could present you with further lending possibilities for the future.
Things to Keep in Mind Before Refinancing
The standards that have been set out for loan approval are not quite the same these days as they were many years ago. If your credit score is below 720, obtaining financing might be a struggle. Refinancing with home equity puts you in a good position, as does having a good debt-to-income ratio. The rules for lending based on the debt-to-income ratio have tightened up, also.
Generally, you will be granted refinancing if your ratio falls somewhere between 36% and 40%. If you are willing to pay an increased interest rate to fund the closing costs, this will improve your chances at obtaining home refinancing.
Putting Things into Perspective
We all have debt obligations and as nice as it would be to not lose a valuable night’s sleep over them, it happens. With refinancing options, you can lift a weight off your shoulders. Furthermore, the reduced monthly payments could aid you in improving your credit score, so keep your options open and make an informed, confident decision.