How Does Refinancing a Home Really Work?

by US Mortgages / November 9, 2018

Refinancing your home loan may be the solution you’ve been looking for to help you save more money while achieving both your short, and long-term financial goals. Refinancing an existing mortgage provides home owners with the opportunity to obtain a new home loan to shorten the repayment period, take advantage of lower available interest rates and decrease their monthly payments. In many situations, Denver homeowners are refinancing existing loans to take advantage of Colorado’s continually increasing home values to take cash out of the available equity to use for home improvements, pay for college, or just pay off higher interest rate credit card debt. Could it be the right move for you?

What Is Refinancing?

When you refinance your mortgage, you’re essentially requesting a new home loan that pays off and replaces your existing mortgage. This does not mean you need to use the same lender to refinance that you did for your original note. Rather, it should be your goal to find the lender that offers you the best combination of terms, benefits, and guarantees that matter most for you.

Why is Denver Refinancing?

You may be wondering, “Why are so many people in Denver refinancing?”  There are a variety of benefits that come from refinancing but in Colorado and specifically Denver, it’s the increased property values that can provide access to wealth for many home owners. That “wealth” is called equity and it’s the difference of what you owe on your mortgage versus today’s market value of your home. The Denver market alone has seen over 50% growth in value in the past 5 years alone. That means if you bought a house in 2013 for $300,000, it’s probably worth $450,000 today. That growth gives homeowners access to extra cash for investing in home improvements, paying off HELOCs and second mortgages, eliminating high interest credit card or even setting up their emergency cash reserve or rainy-day funds.

Consider the Value in Refinancing Right Now

In Denver, home values are still at all-time highs. This means you may have considerably more equity in your home today than you did just a year ago. For example, according to Trulia, the Denver housing market has seen the median home sales price rose over 7 percent from 2017 to 2018. That means your home could be worth significantly more right now giving you access even more equity.

Equity is the amount of unmortgaged value on the home. For example, if your home is worth $300,000 in 2017, it may now be worth 7 percent more, or $351,000. Let’s say your mortgage balance, or the amount you owe your lender is $225,000. That means you now have $126,000 in equity. You could refinance your home loan, take out some of that equity, and use it to achieve other goals you have.

  • Use the funds to pay off high-interest rate credit cards.
  • Do some home remodeling and renovations to increase your property’s value even more.
  • Use the funds to finance investments such as to start a business.
  • Set aside enough cash to cover 6 months to 1 year’s expenses in the unfortunate happens and you are without income for an extended period of time.

Should You Refinance Your Home in Colorado?

Colorado homeowners looking to refinance their mortgage should start by understanding their short and long-term financial goals of a refinance such as:

  • Lowering the interest rate – if you want to lower your interest rate, ask yourself, why? Typically, home owners who want to lower their interest rate really want a lower monthly payment and there are more ways to achieve monthly lower payments than just lowering the rate.
  • Reduce the term, or length, of the loan – some homeowners may want to refinance from a 30 year note to a 15 to accelerate their pay-off and reduce their interest payments by tens of thousands of dollars.
  • Access to Equity – with the ever-growing property values in Colorado, home owners now have access to more cash than ever before. If the market ever drops in value, the equity that was there today, may not be there in the future.
  • Divorce Settlements – Unfortunately, when homeowners get divorced they need to to take one of the spouses off of the title and off of the loan as well as pay out their share of the equity in the property. The only effective way of achieving that is through refinancing.

Once you understand your goals you’ll need to choose a lender to work with. Find a lender who is willing to answer any and all questions while providing you the additional information that you’ll need to make an informed decision.

Once, you chosen a lender and agreed on a loan program and terms you’ll want to lock in the interest rate to insure the rate you were quoted at application is “locked in” for closing. Your lender will need some information about you, such as income and expense, your credit details, and your work history. Approval to refinance your mortgage loan is largely based on your income, asset, debt, and credit qualifications.

If you are requesting cash out at closing, the lender will require an appraisal of the property. This is a simple step that requires an inspector to come to your home to determine the value of the property by evaluating the property conditions and comparing your home to other comparable home sale values in your area.

Is Refinancing Right for You?

Should you refinance? Doing so could help you to save significant money over the lifetime of your loan, get your credit card debt under control, or investing in home improvements and upgrades that can actually help increase your property value even more.

You should consider if refinancing brings value to you and your family. It could it open the door for you to achieve goals that you didn’t think were possible. At US Mortgages, we are ready to help you understand your options and achieve all of your goals. Contact us today to learn more about our unique refinancing products like our Goal Keeper Refinance™, Divorce Resolution Refinance™, and how to protect your equity with our exclusive 10-year Home Safe Equity Guarantee™, included with every qualifying refinance loan with US!

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