Every American family fears having a mortgage dictating their life. This is a genuine fear since 44% of Americans have a mortgage, and some are at risk of not paying due to the pandemic. It’s hard to pay a mortgage, especially if you haven’t managed your finances for the long haul. Consider this: the average years to pay for a mortgage is between 15 to 30 years. The average monthly payment for mortgages is at a staggering $1,100. That’s about $12,000 to $13,000 you must pay for every year.
The average household income of an American family is only $68,000. The average expenditure is $63,000, but the statistic only uses the smallest housing average. If you sum it with the average monthly payment for mortgages, you’re looking at an average expenditure well-above the average household income. That is a fear that every American family has every year. But is it all that bad? Not entirely.
The most challenging time for you to pay your mortgages is during the first year you get your mortgage. Every year after that becomes much easier. Why is that? Well, aside from getting used to it, mortgages are susceptible to changes. If you take advantage of these changes, then you’re likely to get out on top. One way you can take advantage of these changes is through refinancing.
Refinancing is an investment option you can do for your debts or loans. It is a proactive action to make your loans seemingly more characterized to benefit the payer. It can be done to almost all kinds of loans, whether for businesses or homes. However, you should know one essential thing: home loans and mortgages are two different things. The former is limited to residential properties, while the latter can be used for technically almost anything. You can use it for your home, your business, or paying other loans.
Because of this, mortgages tend to have higher interest rates. So if you’re looking to buy a home, consider getting a loan dedicated for that property instead. However, if you’re looking to get a bit more money for other things, get a mortgage. In this article, we’re concentrating on conventional mortgages.
There are different rules for when you can refinance your mortgage. This primarily depends on what kind of mortgage you have. If you have a conventional mortgage, you can refinance whenever you want. Your lender might have to give you six months before you can refinance with them, but you can always try with other lenders. Although, this is not suggested.
Refinancing your loans can mean many things, all of which depend on your current living situation. Some people refinance because they want to get better benefits from their loans. Some do it to pay out other loans. However, most people refinance their loans so they can get more breathing room between payments. But we suggest you not do this.
One reason you should refinance your mortgage is to get more money out of it. That’s right; you can get more money out of your mortgage. You can even get more money than what you have to pay if you’re dedicated enough.
When to Refinance Your Mortgage?
You have to consider if you can pay your mortgage, given its standard duration. There’s a lot of calculation to be done here and also some foresight. Still, if you think that you are stable enough for the next 15 to 30 years, you shouldn’t consider refinancing your mortgage. But for most, this is wishful thinking.
The good time for you to refinance your mortgage is usually when you have paid more than half of it. That’s half the duration of your mortgage or the cost of your mortgage. They tend to be the same thing. This can give you an opportune time to extend your mortgage for about five to ten years, but at a reasonable cost. This can also give you the chance to use that money to pay for other loans you might have, so by then, you only need to pay for your mortgage. You can also choose to shorten your mortgage by paying a bit more than usual.
The best time for you to refinance your mortgage is when interest rates are low. When interest rates are low, payments for mortgages can reach as low as $800 per month. That’s a significant deduction from the average. Additionally, lower interest rates mean more money for you, so you can actually get more money than what you have to pay in the long run. Currently, Federal Reserve rates are low, so now is considered the best time for you to get or refinance a mortgage.
Ultimately, the time to refinance your mortgage is up to you. If you’re having a hard time deciding, consider getting a consultation with a financial advisor. They can help you structure your refinanced mortgage so you can get a better view of your current situation.