Ohio mortgage refinances are popular for homeowners who want to remove equity from their home, borrow at low rates, or simply change the structure of their current mortgage payment. We’ll show you the ups and downs of an Ohio mortgage refinance and how you can use the refinance to improve your finances.
Home Equity Loans
Homeowners who want to refinance their current mortgage should consider a home equity loan. A home equity loan is a loan in which the equity in the home (the difference between the current sales price and outstanding debt) can be borrowed against at a low rate. In some cases where the owner has more than 20% equity in the home, a home equity loan can refinance a property entirely.
There are a few reasons you might choose to do a home equity loan as an Ohio mortgage refinance, but mostly homeowners choose this route to get lower rates. A home equity loan typically comes with a very low rate because there is plenty of security for the lender. Most lenders will loan only up to 80% of the home’s value, thus giving them a sizeable margin to make a profit even if the loan goes sour.
Home equity loans issued as lines of credit are the most flexible loans a homeowner can get. With a variable interest rate and repayment terms that allow the homeowner to make interest-only payments, some homeowners find that refinancing their current home in full or partially will reduce their cash flow dedicated to a mortgage. Plus, since home equity lines of credit have variable rates, the HELOC is virtually guaranteed to have a lower rate immediately than you could find on similar fixed-rate mortgage.
Refinancing a Home
Refinancing isn’t all about getting a lower rate or better payment terms. Instead, some homeowners strategize their Ohio mortgage refinances to match their loan with their life plan. If you plan to live in a home for only five years, for example, then it makes sense to convert a fixed-rate loan to a variable rate loan. In doing so, you maximize the benefits of a variable rate loan (getting a lower interest rate right from the start) while you live in it. Typically, rates don’t move very much in only a few years, and you can always refinance again to go fixed-rate if it better suits your plan in the future.
Additionally, some homeowners find that refinancing is a great way to consolidate debts, finance college education costs, or to access inexpensive loans for a new business, funding a retirement plan, or other long-term investment. Because the interest paid on a mortgage is tax deductible, some investors find that refinancing their home regularly is a good way to make money on the difference. If, for example, you can borrow money at 4%, and have a tax rate of 25%, then your effective rate is only 3% per year. If you can earn 6% on the cash in an investment, then you have doubled the cost of the interest and are using leverage to grow your wealth.
Refinancing Made Easy
Whereas first time homebuyers loans can be difficult to come by—many banks find a first time homebuyer to be too risky—refinancing a current mortgage is one of the easiest ways to take advantage of low rates.
To qualify, you’ll simply need to submit an application to a bank, wait for approval, and then go through the hoops of an appraisal plus inspection to determine your home’s current market value. Homeowners who have been in their home for 5 years or more should have some appreciation plus a reduced principal on their current mortgage, which makes for an easy approval. Besides your current credit score, the most important piece of the puzzle is the value of your home, and the existing mortgage debt on the property.