With hundreds of snowbirds making a move from snowy northern states to sunny South Florida every year, it seems the real estate market is constantly evolving. However, for those who have already purchased their homes in the sunshine state, their current mortgage might not be cutting it anymore.
If you read that last sentence and thought, “Me too!” here’s some good news: it is possible to refinance your mortgage.
The process of refinancing a mortgage is to pay off the existing loan and replace it with a new one. There are many reasons as to why a homeowner would make the jump to refinance; including the opportunity to shorten the term of their mortgage, lower their interest rate, or utilize their home’s equity.
If you’re curious if now could be the right time to refinance, read on to discover if your current scenario matches a refinance option.
The most common reason homeowners refinance is to secure a lower interest rate. Reducing the interest rate on a mortgage decreases the size of the monthly payment, which allows the homeowner to save money. For example, a 30-year fixed-rate mortgage with an interest rate of 8% on a $100,000 home has a monthly payment of $734. That same loan at 6% reduces your payment to $600.
If you’re looking to lower your interest rate, evaluate if your current loan is a fixed rate mortgage or an adjustable rate mortgage (ARM). You may have begun with an ARM, which seemed financially beneficial at the time. However, if the rate has increased over time, your current adjustable rate may be more than the current fixed rate. Likewise, the fixed rate, which seemed safer years ago, might not be looking as appealing now that the ARM has decreased. Switching to an ARM is risky, as your interest, as well as your monthly payments, is subjected to change.
As interest rates in South Florida fall, homeowners are left with the opportunity to refinance their current mortgage for a new loan that offers a similar monthly payment with a much shorter term. For the same 30-year fixed-rate mortgage on a $100,000 home, refinancing from 9% to 5.5% cuts the term in half – down to 15 years – with only a $12.46 increase in monthly payments.
Most homes increase in value over time. In South Florida where the market continues to expand, even homes that aren’t water or beachfront are becoming increasingly more valuable. If you have more than 20% equity in your home, it is possible to refinance your mortgage for financial gain. Funds could be used for home remodeling projects, to further increase the value of the home. Conversely, funds could be used to consolidate outstanding debt. Though this is not a recommended method of paying debts, it is an option.
Before making your refinance decisions, take a moment to analyze your current financial situation. How has your credit score and payment history changed, if at all, since you took out your mortgage? If your credit has improved, you may qualify for a better interest rate. If your credit has decreased, your chances for a refinance loan may have decreased as well.
Refinancing can cost 3% to 6% of the loan’s principal and requires a process similar to that of your original mortgage. You’ll need to pay appraisal, title search, and application fees. Additionally, there may be a fee to end your current mortgage early. Bear in mind these costs when weighing your options.
If you’re curious about whether it is the time to refinance your current mortgage in South Florida, don’t go at it alone – call our office at (561) 362-8204 to book an appointment.
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