Table of Contents
- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
What is Refinance?
Refinancing in Texas is a process where a borrower replaces his old mortgage with a new one for a specific reason.
Now when you do that basically, it means paying off the old mortgage and creating a new one.
But to do that there has to be a prominent intention and a valid reason. An individual may opt for refinancing if he/she is looking to lower the interest rate, change the tenure, take cash out, or change the mortgage company.
There are pros and cons to refinancing, which we will discuss as well. First, let’s understand the reasons for refinancing in Texas.
Reasons for refinancing in Texas
There could be lots of reasons why an individual may opt for a refinance In Texas. Keeping in mind your credit history would be a major deciding factor in whether or not it is best for going for a refinance.
1 - Lowering the Interest rate.
The primary factor before going for a refinance is to lower your interest rate. The interest rates are fluctuating on a daily basis.
If your current mortgage is on a higher interest rate and if the market rate considerably is lower than your current interest rate, refinancing can save you lots of money provided you have a good credit history.
If the market rates are going up, a good option would be to wait for them to lower down or get other options.
Your loan officer would be the best person to guide you with the best options available for you depending on the market and your current situations for refinancing in Texas.
2 - Changing the Tenure.
Many people refinance to change the tenure. For example, if you purchased a home on a 30 years note and now you are ten years into the loan, and if you want to change the tenure to 15 years note, refinancing would be a smart move for you.
In this case, you may not only save on five years of monthly payments but also may get a lower interest rate, as the interest rate on 15 years mortgage is more economical in comparison to 30 years.
Again refinancing in Texas is subject to market conditions on interest rates and your credit history.
3 - Changing from Adjustable Rate to Conventional or Fixed Rate
Yes, you read it right. There are individuals whose only reason to refinance could be to change from Adjustable Rate Mortgage (ARM) to a conventional one.
And it could be a wise decision as well. The interest rate on an ARM loan is usually fixed for a few years, and after maturity, it is adjusted according to the market conditions.
So if you have an ARM loan, it would be best to refinance before it reaches maturity. Once it reaches maturity ARM loans can offset your interest rate above the market conditions, doing so, increasing your monthly payments.
Hence, refinancing in Texas to change from an adjustable-rate to a fixed rate could be worth the money.
4 - Getting Cash-out from Home Equity.
Getting a cash-out is one of the major reasons why an individual might go for refinancing. Going for a cash-out refinance could be a little tricky.
Because it adds up to your loan balance hence, increasing the monthly payments.
Usually, the interest rate on cash-out refinance is higher than a conventional rate and term.
That’s why it is advisable to go for this type only if you are in dire straits. To qualify for a cash-out of refinancing, you must have enough equity in your home to pull the desired amount of cash.
In addition to that, an individual also needs to have a good credit history. The maximum cash-out an individual can pull out is up to 80% of the property value.
Now this 80% will also include your previous loan balance and the closing costs.
Below is the table with an example to understand better. Cash-out refinancing in Texas has different guidelines compared to other states in the country.
5 - Changing the Current Mortgage Company/Lender.
We all have gone through financial discrepancies with our banks/lenders at some point in time.
Not enough to change the bank/lender. But some of you may have had these at a level where the only option was to change your current mortgage with a different lender or bank.
In this case, a borrower can select a bank or lender, approach them, and get a refinance done through the new bank or lender.
Conclusion
Knowing the reasons for refinancing in Texas is only the beginning of the refinance process. Once you have a valid reason for refinancing, you can get in touch with your trusted loan officer to know your refinancing options that are unique to your situation.
By having all the knowledge available to make a well-informed decision, you can have peace of mind and comfort once you are aware of the reason for refinancing in Texas.
