Eleanor Osborn's Blog
Many Americans who purchased their home when they had lower credit, a shorter employment history, and less money stand to gain from refinancing their mortgages. However, most miss out on this opportunity or don’t realize it in time to save potentially thousands in interest payments.
According to recent data, 5.2 million Americans could save, on average, $215 per month if they refinanced their loan. But many homeowners are hesitant to refinance.
Whether it’s because of the inconvenience, the cost of refinancing, the worries about something going wrong, or uncertainty about whether they’ll actually save money if they go through the process, millions of homeowners are missing out.
So, in this article, we’re going to talk about some reasons it may be a good idea for you to refinance. If you’re one of the millions of Americans with a mortgage who are thinking about refinancing, this post is for you.
Riding the wave of the economy
Interest rates on home loans are historically low right now. As a result, homeowners can save by refinancing simply due to changing tides of the real estate market. Although mortgage rates have increased slightly over the past two years, they’re still on the low end, so this could be your last chance to save.
To consolidate your debt
Credit cards, auto loans, and other forms of debt can add up quickly. If you have a high-interest rate on your other debts, refinancing could be a good way to consolidate and save.
This can be achieved through a home equity loan or by refinancing with a cash-out option. This means you refinance your mortgage for more than you currently owe and take the remainder in cash to pay off your other debts with high-interest payments.
Typically, you need to have at least 20% equity (or have paid off 20% of your mortgage) to be eligible for this option.
Small percentages count for more now
It was once said that refinancing only made sense if you would receive a lower interest rate of at least 1-2%. However, with the prices of homes increasing over the years, sometimes even a small change, such as .75% is enough to save you substantial money on your repayment.
You’re able to repay early
One of the best ways to save on a home loan is by refinancing to a shorter term. Going from a 30-year loan to a 15-year loan can save you thousands. There are several calculators available for free online that will enable you to estimate how much you could save by refinancing to a 15-year mortgage.
You got a raise
One of the best times to refinance is when you can be certain that you can afford to pay off your loan sooner. As people progress in their career, it isn’t uncommon for them to refinance their loan so that they can spend more each month but save in the long run.
Since you have a higher income, and likely higher credit, you can also refinance a variable rate loan to lock in a lower fixed rate.
We all know that buying a home is expensive. For first-time buyers who don’t have the luxury of equity for a down payment, it can be difficult to find a way to finance your home without taking on a huge interest rate and mortgage insurance.
Fortunately, loan programs like those offered by the U.S. Veterans Affairs can be a godsend. However, there is a great deal of confusion around who is eligible for VA loans and how to acquire them.
So, in today’s post, we’re going to cover some of the frequently asked questions of VA loans. That way, you can feel confident in knowing whether or not it’s a good financing option for you and your family.
VA Loans FAQ
Who is eligible for a VA Loan?
VA loans aren’t just for veterans. Most members of the military, including Reserve and National Guard members can apply. Additionally, spouses of service members who died from a service-related disability and those who died on active duty can apply as well.
How long do you have to service to be eligible?
The VA defines eligibility as having served no less than 90 days of service during wartime and 181 days of continuous service during peacetime.
Who are VA Loans offered by?
Like any other loan, VA loans are offered by private lenders. The difference is that VA loans are guaranteed by the government. That means that the federal government takes on some of the risk of lending to you, therefore making it possible to secure a loan with little or no down payment.
Should I make a down payment on a VA loan?
If you have the means, making a down payment will almost certainly save you money in the long run. If you can put down 10% of your total mortgage amount, you can also significantly reduce the VA Funding Fee.
Will I have to pay private mortgage insurance?
Private mortgage insurance (PMI) is something that borrowers pay on top of their mortgage payments and interest. This additional insurance helps borrowers buy a home with a small down payment. VA loans allow you to secure a mortgage without PMI.
Are VA loans different for active duty, National Guard, and Army Reserve members?
Each type of service member is eligible for a VA loan. However, there are some minor differences regarding the VA Funding Fee. With no down payment, an active duty member would pay 2.15% of the loan amount in fees. National Guard and Army Reserve members pay around 2.40% with no down payment.
What does my credit score need to be to get a VA loan?
The VA doesn’t have a set minimum credit score. However, the private lenders that offer the loan do. On average, the lowest credit score that you can secure a VA loan with is around 620. That being said, a higher score will secure you a lower interest rate, saving you money over the lifetime of your loan.
Paying off a mortgage early is a dream of many homeowners. By making larger payments on your home loan, you can cut years off of your loan term and save thousands of dollars in interest payments that you can use toward savings or investments. But in an economy that has seen decades of wage stagnation and increasing costs of living, it can often seem like an unattainable goal.
With some planning and initiative, however, there are ways to pay off your home loan before your term limit.
In today’s post, we’re going to talk about three of the ways you can start paying off your mortgage early to avoid high interest payments and save yourself money along the way.
1. Refinance your mortgage
If you’re considering making larger payments on your mortgage, it might make sense to look at refinancing options. Most Americans take out 30-year, fixed-rate mortgages.
If you can afford to significantly increase your mortgage payments each month, you could refinance to a 15-year mortgage. This will save you on the number of interest payments you’ll have to make over the years. But, it will also help you secure a lower interest rate since shorter term mortgages typically come with lower interest rates.
This option isn’t for everyone. First, refinancing comes with fees you’ll have to pay for upfront. You’ll have to apply for refinancing, get an appraisal of your home, and wait for the decision to be made.
But, you’ll also have to ensure that you can keep up with your higher monthly payments. If your income is variable or undependable, it might not be the safest option to refinance to a shorter term mortgage.
2. Make extra payments
An option that entails less risk than refinancing is to simply increase your monthly payments. If you recently got a raise or are just reallocating funds to try and tackle your mortgage, this is an excellent option.
Depending on your mortgage lender, you may be able to simple increase your auto-pay amounts each month, streamlining the process. Otherwise, it’s possible to set up bill-pay with most banks to automatically transfer funds to your lender.
3. Bi-weekly payments or one extra payment per year
Making bi-weekly instead of monthly payments is an option that many homeowners use to pay off their mortgages early. Bi-weekly payments work by paying half of your monthly payment once every two weeks.
The vast majority of homeowners make 12 monthly payments per year. But by switching to 26 bi-weekly payments, you can effectively make 13 full monthly payments in a year without seeing too much of a difference in your daily budget.
This doesn’t seem like much savings in the short term, but let’s take a look at how much you could save over the term of a 30-year mortgage.
On a 30-year fixed mortgage of $200,000 with a 4.03 annual interest rate, you would make a monthly payment of $958.00 and a bi-weekly payment of $479.
Over 30 years of an extra monthly payment, you could save nearly $20,000 on the total interest amount and pay off your mortgage almost 5 years early.