At some point in your life, the time will probably arrive when you need to refinance your home. Refinancing means replacing your current mortgage with a new one, preferably on better terms. Most mortgages run anywhere between one and five years and need to be renewed after the contract period. Even though you’ll be paying a mortgage on your home for longer than that in most cases, you can adjust the terms to suit your purposes and reflect changing interest rates.

The three main types of refinance:

Refinancing income is in three main types, and they all have different purposes.

1. The most common approach is to swap your current loan for a new one at a lower interest rate. This is standard in the mortgage market and allows you to adjust how much you repay based on your circumstances. In many cases, you’ll find that there are better deals out there than when you signed up, and interest rates have risen significantly during the intervening period.
2. Another option is a cash-out refinance. This happens when your home grows in value, and you can borrow more money against it. You can then take the difference as cash and invest it somewhere else. Many real estate investors like doing this because it gives them the cash they need to put a deposit on a new property. It’s risky because it relies on general property values rising over time.
3. The final option is a cash-in refinance. The idea here is to bring a lump sum of money to the closing table to pay down your principal balance. This is a method you can use to lower your monthly payments significantly on the property.

When does refinancing make sense?

Refinancing makes sense in several situations. It carries some upfront fees, but it can also advantage you financially. For example, it makes sense if your credit score is above 620. This tells lenders that you’re relatively low risk. It also makes sense when your home equity is currently at least 20%. If your home equity is less than this, it can increase the amount of interest you pay on your monthly repayments in the future, and it might not be economical.

You should also consider refinancing if you’ve got access to bridging loans at Squared Money. These are short-term loans that can provide you with the money you need in order to get the best possible refinance deal on your property when it becomes available.

How the refinancing process works:

The refinancing process is relatively simple:

1. Go and shop around multiple vendors, preferably using a mortgage broker to help you get estimates from three to five of them.
2. Look for the best one and submit your paperwork.
3. Provide financial proof of your status, including your W-2, bank statements, and pay stubs.
4. Show the lender that you’re able to repay the loan.

Once you close on the loan, make sure the estimated cost matches your initial estimate. You usually have a cooling-off period where you can change your refinancing agreement if needed.

With the right help, refinancing your home is a simple and financially beneficial process!

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