Amid all the financial considerations homeowners must make, finding ways to save money is often a high priority. Refinancing a mortgage is possible in several ways; the trick is choosing the one that works best for your financial situation.
Consider recasting versus refinancing your mortgage if you're trying to decide which option is best for you. However, both options have pros and cons, even though they can reduce your mortgage payment and help you save money on interest. Let's compare and contrast them to see how they differ and decide which is best for you.
Your new monthly payments will be based on your new balance. The only thing that will change is how much you pay every month because of the lower principle debt. You can keep making payments to the original lender, but with less interest to pay back and smaller monthly payments.
Mortgage refinancing entails what?
You are said to have refinanced when you take out a new loan to pay off an existing one. How? Your former mortgage loan servicer receives a payment from your new lender, and you begin making payments to your new lender at a lower interest rate. Recasting has a similar effect on your monthly mortgage payment as it does on your interest savings. The PMI and the loan duration can both be reduced through refinancing.
Rethinking the Benefits and Drawbacks
One of the key benefits of recasting is how simple it is compared to refinancing. To "recast" your loan, you won't have to go through the same application process as if you were getting a brand new loan. As a result, there will be fewer red tape and prerequisites. You are not required to verify your income, list your assets, or improve your credit score.
An advantage of recasting is that it only requires a request for a new amortization schedule while the loan already exists. Recasting may be the best option for homeowners in certain situations, such as being self-employed or having less-than-perfect credit. If you decide to recast your loan, keep in mind that your lender will only adjust the principal balance of your loan and not other terms or conditions. Recasting fees are typically lower than those associated with traditional mortgage refinancing. Thus, there may be no need to calculate a break-even point, or it may be rather low.
Considerations for Refinancing
Personalization is the main benefit of refinancing over recasting. Refinancing allows you to modify your loan terms, possibly acquire a lower interest rate, and reduce your monthly payment. It's a fresh loan, so you can tailor it to your specific circumstances, such as a shorter term or a higher cash outlay to reduce your debt load. On the other hand, a new loan may cost more than a recast in the long run. Refinancing doesn't always result in a reduced interest rate; consider the time and the new term structure before making any assumptions.
With a refinance, you'll also have to pay certain fees and costs at closing. American Financing is eager to work with borrowers to reduce costs and fees, which sets them apart from most lenders. Finally, since you're applying for a new loan, you'll have to go through the entire mortgage process again. This includes recent pay stubs and W-2 forms, proof of assets and debts, a high credit score, and so on.
To you, which makes the most sense?
Some mortgages, such as Federal Housing Administration (FHA) and Veterans Affairs (VA) loans, are not eligible for recasting. Recasting is less complicated than other methods because it simply calls for a one-time payment to reduce the amortization schedule and the payments. When consolidating your debt, you can't refinance your loan to a better or shorter-term rate. Use a mortgage payment calculator to determine if recasting is viable, keeping in mind that making a major principal decrease will require a sizable sum of money.
Should you get a mortgage to refinance? There is no easy answer because it relies on several circumstances. Refinancing your mortgage might make a huge difference if you have a large outstanding loan or a lot of debt. Think about the new Federal Reserve chairman, little market rate hikes, and external influences.
However, there are many factors to consider before deciding to recast or refinance an existing mortgage. People's financial situations are different, but the need to make a well-informed choice is universal. Get in touch with American Financing's mortgage advisors for assistance. We can help you with recasting and refinancing. However, our commitment to our clients sets us apart from other mortgage companies.
