What is Refinancing?
Sunday, May 30 2021
Mortgage refinancing in Oklahoma is the process of replacing your existing home loan with one that has better terms and improves your overall finances.
When you refinance, you pay off your existing loan and begin making payments on an entirely new loan. The new loan continues until you pay it off or you decide to refinance again.
Recently you may have heard people talking about low interest rates. But what do these rates mean for you? Is now the right time to refinance? We’ll break down what you need to know if you are thinking about refinancing your home.
Benefits of Refinancing
Every person’s financial goals and situations are different. What makes economic sense for someone may not work for you. When considering mortgage refinancing in Oklahoma, you want to weigh your benefits.
Some of the benefits of refinancing are:
- Lowers Your Current Interest Rate. Refinancing makes sense if it reduces the monthly payments on your home mortgage. If the current interest rate is lower than your original rate, refinancing can put money in your pocket. But keep in mind just because rates went down doesn’t mean you will have access to the lowest rate. Banks will determine if your financial situation changed since the last time you applied for a loan. Did your credit score go up or down? Have you opened any additional lines of credit? Have you changed jobs?
- Changes Your Repayment Schedule. You could decide to extend the terms of your loan, which would result in a lower monthly payment. Or you could refinance to shorten the duration of your loan. If you currently have a 30-year mortgage and refinance it to a 15-year mortgage depending on the interest rates, this change could help you pay off your loan a lot faster while only increasing your monthly payment slightly.
- Consolidates Debt. If you have multiple loans, now may be the time to consolidate them into one. Managing a single loan makes it easier to track and pay.
- Switching to a Fixed-rate Loan. Do you currently have an ARM (adjustable-rate mortgage) on your home? An ARM means your interest rate adjusts throughout the loan. If you plan to stay in your home, refinancing allows you to fix your rate for the remainder of the loan period.
- Taking Out Cash for Investing. Many people refinance to pull money out. If you have equity built up in your home and want to use the funds to reinvest in other properties, pay for college, or different needs – refinancing lets you do that.
What to Consider When Refinancing
Although there are benefits to refinancing, you’ll want to fully understand the process and cost before signing the paperwork.
There will be costs to refinancing in the form of an application fee, title services, lender origination fee, appraisal fee, and inspection fees. In addition, you’ll pay closing costs as you did when you took out the original loan. These costs can add up to thousands of dollars upfront, depending on the size of your new loan.
Do a break-even calculation to determine if the savings associated with the refinancing is worth it to you. If you plan to move in the next few years, or if your loan is close to being paid off, these extra costs may not be worth it.
If you decide to refinance to extend the terms of your loan, you will pay more interest on your debt when you stretch the payment period. As a result, you may lower your monthly costs while raising the cost over the life of the loan. Therefore, you want to understand how the loan terms impact how much you pay long term.
What Lenders Consider When You Refinance
Mortgage refinancing in Oklahoma follows the same process as your original loan. The lender reviews your credit score, payment history, equity in the home, and other debts.
If your financial situation changed since you received the loan, refinancing could lower your rates. For example, if your credit score improved, you could receive more favorable rates on your new loan. And the reverse is true. If you lost a job, took out another loan, or have another financial burden that lowered your credit score, it may be better to wait until you have a better financial position to refinance.
Why Should You Refinance with a Credit Union?
You want to work with a trusted lender to refinance your home.
Credit unions are membership based while banks are owned by their stockholders. Often this results in credit unions being able to provide lower fees and better interest rates on loans. Since they aren’t worried about stock dividends, they can pass savings benefits onto their members.
Also, credit unions are known for providing better customer service, while large banks tend to have stricter rules and less flexibility in decision-making. Credit unions work with you to find the loan that works best for your financial situation.
How Focus Federal Can Help
If you are considering mortgage refinancing in Oklahoma, Focus Federal Credit Union can discuss your options. Call us today to learn more.