Refinancing your home loan can be a massive decision with far-reaching ramifications. The reasons a person might consider refinancing his or her mortgage are considerable. You may have loads of high-interest debt you need to pay off. Maybe you’re going through a divorce and you have to refinance to buy out your ex-spouse’s interest in the home. Maybe you just want a better interest rate. No matter the reason, you should always be certain that a “refi” is right for your specific situation at that particular point in your life. It is extremely useful to consult with a real estate attorney like Ray Garcia to discuss the effect refinancing could have on your family.
There are two main types of refinancing. The first is a “cash-out” refi which would involve taking out a new mortgage that is even higher than your original one. You would then be paid cash for the difference between the two. The second type of refi is a “standard” refinancing. This would take the place of your original mortgage with new terms and a new interest rate.
Whatever your reasons and whatever the type of refinancing you desire, there are certain things everyone should consider before taking action:
1. What are your goals?
Be very clear on your reasons for refinancing. What do you hope to achieve by refinancing your home? Do you need extra cash for a certain reason right now or are you just hoping to save some money in the future? Before refinancing your home you need to sit down and thoroughly talk about, and preferably write down your goals for refinancing so that everyone involved will be very aware of the “why” of your refi and be able to advise you accordingly.
2. Is refinancing worth it?
Your lender and an experienced real estate attorney can help you with thinking through the numbers and technical aspects of your refi, but you have to ask yourself if refinancing is actually going to be worth it. It may seem like a good idea, but you need to have a plan and run the numbers to see if it makes sense for your situation. What is your new interest rate going to be? How many years will it take to pay off the refinanced mortgage? In the case of a cash-out refi, what is the cost-benefit of incurring more debt on your home to pay off other debts? In the case of standard refinancing, you will want to think about how your credit score has changed and how interest rates have changed since you got your original loan. Have your circumstances in life changed in a way that could beneficially affect your mortgage? There are a lot of questions you need to ask yourself to figure out if a refi would be worth it for you in the short term and the long term.
3. Can you afford it?
Obviously, in the case of cash-out refinancing you need to seriously think through the financial implications, and as we just mentioned, do a cost-benefit analysis for the refi versus the reasons you need the extra cash. Additionally, however, for both standard and cash-out refinancing you need to think about what the process of refinancing will cost you. As with your original mortgage, there are closing costs involved in refinancing your home that can be very costly. This consideration ties into answering the previous question of “Is it worth it?,” but should also be considered independently. Do you literally have the money on hand or available right now to afford the refinancing process?
Refinancing your mortgage can be an incredibly useful tool under the right circumstances, but be sure to consider the previous three questions before taking any action. If you have questions about your mortgage and your financial options such as refinancing, call the Law Office of Ray Garcia to talk about your situation and figure out what could work best for you.
Law Office of Ray Garcia, P.A.
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