Common Questions/Misconceptions about Refinancing a Loan

Common Questions/Misconceptions about Refinancing a Loan

A bad day in South West Florida is better than a good day anywhere else, and there’s nothing the folks of Florida hold closer to their hearts than their homes and mortgages. The last decade, with its record low-interest rates, has been a good decade for the mortgage owners of South West Florida. Mortgage and loan owners from Tampa to Sarasota are beginning to consider loan and mortgage refinancing. To many, however, this is a dreadful consideration as Refi’s are shrouded in a cloud of uncertainty fuelled by several myths and misconceptions. Some of the most popular misconceptions are:

Refinancing Makes Minute Returns

A common myth is that refinancing your loan or mortgage gives insignificant returns. Nothing could be farther from the truth; by refinancing, you can help you save you thousands of dollars over the many years to come. Refinancing a 120,000 dollar home payable over thirty years from a 10% loan to a 4.5% loan can bring down your monthly payments from about 900 dollars to 450 dollars, over a decade you may end up saving a whopping sixty thousand bucks. Bucks are hard to come by these days and very few financial strategies can give you a better deal.

Refinancing is Very Costly

While it’s good to put it out there that refinancing is not free, contrary to popular belief, it also doesn’t cost an arm and a leg. While refinancing, you may have to pay for closing costs and fees just like any other mortgage. However, the returns and benefits of loan and mortgage refinance dwarf the minute costs.

Refinancing Will Cost Your Equity

Your equity is affected if and only if you add to your principal. This applies to certain types of mortgage refinance such as cash-out refinance, where you pull out cash out of your home, adding to the principal. However, if you aim to get a lower rate or reduce your payment time, your equity remains unscathed. This offers a rare opportunity where you can shorten your loan repayment, pay lower interests, while simultaneously increasing your homes’ equity.

It’s Too Early for Your Second Refinance

You can always refinance your loan or mortgage sometimes even six months after your previous refinance. Just as the Tampa folks say, if the deal is too good, take it twice. With refinancing you never have to regret your financial mistakes, if your 15-year repayment is more favourable than the 30 year one, you can have the latter with refinancing.

Refinance Makes Selling Your Home Harder

This is another myth that has been making rounds in mortgage lending circles. Refinance loans only replace your first mortgage with your second one. This does not in any way, affect your ability to sell your second home.

You Need That 20% Equity

This myth has made many people forfeit the exceptional returns of loan refinancing. It has roots in the 2008 financial crisis but has no foundations in loan refinancing. Though mortgages with less than 20% equity may require mortgage insurance, you can still refinance your loans and reap better returns relative to the insurance costs. Also, loans such as FHA and VHF offer to refinance to loans below that threshold. Programs such as HARP also offer to refinance to people with barely any equity.

People Refinance Only For Lower Interest Rates

Refi’s is more than just a lower interest rates strategy. You may refinance your mortgage for several different reasons. Maybe, you need to reduce your loan term from some distant year in the future to a more favourable one to save on interest payments. You may also consider refinancing to pay for college loans or buy a new car after years of building on equity.

You too can start your loan and mortgage refinance journey. Here at Liberty Savings Bank, you can do just that without breaking a sweat. We are willing to answer all your mortgage questions and offer you the best refinance options in the market.