There are several reasons why you refinance a mortgage. You may want to get a better interest rate and reduce the cost of your monthly payment. Take earned equity from your home and then use it for things such as renovations or paying off debt. Or, you may want to reduce the length of your loan. Before applying, it’s best to understand all your available options. Are you going to sell in the next five to seven years? Do you work on commissions where fluctuating payments may be the best fit? Are you on a tight budget and need the lowest possible payment for the first few years? All these scenarios weigh into your final decision. It’s best to put your trust in the hands of professionals like Flagship Financial Group, who will review your options.
You have three options available for a refinance. You can use a conventional, and FHA or a VA loan. The conventional is the most difficult to get an approval on. Since it does not have the financial backing of the U.S. government, lenders impose stricter guidelines. You need a good credit score and the ability to pay it back. An FHA works just like the conventional except that the guidelines are more lenient. The credit score required is 580 instead of 720 and you only need a 3.5 percent down payment. The VA loan is among the easiest to get an approval. You don’t have to have a high credit score, down payment, there is no P.M.I. insurance and there are minimal closing costs. This loan is available to anyone who has or is currently serving in the military. Within the three different loan options, there are also different types of mortgages that you can apply for. They include a fixed rate, ARM, interest only or a balloon. It’s important to understand which one works best for you. By contacting a company like Flagship Financial who has years of experience in the business, you can get through the process easier.
A fixed rate loan allows you to create a monthly budget. You can get one for 15 or 30 years. Since the payment amount remains the same it’s an amount you can count on without any variations. If you currently have an adjustable rate mortgage and the payments and the interest rate is now higher you can refinance to a fixed rate mortgage. This will reduce the cost of your monthly payment and the rate of interest.
An ARM, known as the adjustable rate mortgage, helps you to reduce the cost of your monthly mortgage payment. This is a good fit if you’ve changed jobs or just started a family and need to cut expenses. This gives you lower payment for the first several years allowing you to increase your salary or get your finances in order. This is also a nice fit if you plan on selling in a few years.
Another option if you plan on selling your home within 5 to 7 years is the balloon mortgage. It works like the ARM, except that the duration of the loan is only 3, 5 or 7 years. At the end of the loan, the entire balance becomes due. You can convert over that the end of the loan to a fixed rate mortgage or you can pay it off. For many people who invest in real estate, this is the preferred mortgage.
Many people also aren’t aware that you refinance and take out an interest only mortgage. These work the same as a fixed rate mortgage. The only difference is that for the first 7 years you would only pay monthly payments on the interest. Once you reach the end of your seventh year then it would include both interest and principal for the duration. It’s beneficial if you are having a tough time making ends meet or changing jobs and won’t reach your desired salary for a few years.
Whether you want to refinance to add an addition, put a child through college or find relief from looming debt, there are many options available. If you have a good credit score, low debt-to-income ratio and a steady income you should have no problem acquiring the right one for you.