When most people buy houses in the United States, one unavoidable problem is loans. Even foreigners without American status can get loans to buy a house in the United States. However, after the loan in the United States, if the loan interest rate is significantly reduced or the credit score is significantly increased, in order to reduce the pressure on the loan, we can also refinance. Last week, the Federal Reserve just completed the first reduction of the federal funds rate in 10 years, and it is expected that the mortgage interest rate will also decline. Many people have asked how to refinance to take advantage of the interest rate reduction. Today, you Toufang will take you to review the loan process when Chinese people buy a house in the United States, and how to judge when it is more cost-effective to refinance?
How to borrow in the United States? What is refinancing?
Refinancing is simply refinancing. Replace old loans with new loans and continue to repay debts. The total amount of debt will not change, nor will the nature of the mortgage. What changes is the way of repayment. Refinancing can be said to be a dose of regret medicine. When there is a better choice of loan, you can modify the loan period and use the new loan interest rate to continue to repay the loan.
U.S. mortgage rates are now at a new low in nearly three years
When to consider refinancing?
Refinancing is to enjoy a more favorable interest rate and term, but the application for refinancing also needs to pay a one-time bank settlement fee, so it needs to be calculated clearly. Generally speaking, when there are the following situations, you can start to consider whether to refinance.
- Improve the score
There are two determinants of loan interest rate: benchmark interest rate and credit score. Based on the benchmark interest rate, there will be a percentage increase according to your credit record. The better the credit, the lower the percentage. This means that the lower the interest rate on your loan.
For example, if you buy a house of 1 million yuan, you can get a loan of 750000 yuan and pay it off in 30 years at an interest rate of 4.5%. Now that the credit score has been raised, it is possible to reduce the interest rate to 4% by refinancing. The monthly housing loan will be reduced from 3800 yuan to 3581 yuan, which will save 2628 yuan per year.
- Arm will be adjusted
Many people use adjustable rate (ARM) loans because they can pay less fixed interest in the first few years.
But when the time limit is over, arm needs to adjust. At this time, the market interest rate becomes higher, which is not good for the loan. Therefore, we can consider re lending and change it to a fixed loan interest rate to save a sum of money.
- Large expenses
House renovation or renovation costs a lot of money. If you have good credit at this time, you can also use a cash out loan to get cash directly. How to operate? For example, a few years ago, I bought a house of 1 million yuan and borrowed 750000 yuan. Now the market value of the house is 1.2 million. And you just need to build a pool, which costs 25000 dollars. Through cash withdrawal and refinancing, the loan can be increased to 775000 yuan and an additional 25000 yuan in cash can be obtained.
What are the benefits of refinancing?
- Save interest
That’s the number one reason many people refinance. You can save a lot of money by applying when interest rates fall, especially for a 30-year long-term loan.
- Reduce monthly supply
Applying for a new loan is equivalent to restarting the timing and extending the loan time. For example, if you decide to refinance a 30-year loan in the fifth year, you can recalculate 30 years. On the other hand, usually, when the loan is renewed, because part of the repayment has been completed, the amount of liabilities is lower than the amount of the original loan, and the loan time is recalculated, the monthly payment will naturally decrease. In this way, there will be more disposable cash flow every month.
- Shorten the loan term
Refinancing can not only extend the loan period, but also shorten the term. For example, change the loan from 30 years to 15 years. In the case of sufficient funds, of course, you can pay directly to pay off the debt in advance. But by refinancing to shorten the loan time, you can often get lower interest rates.
- Managing consolidated loans
If there are multiple loans, especially when interest rates fall, they can be combined into one by refinancing. It not only saves money, but also makes it easy to track and manage debt repayments.
What should we pay attention to in refinancing?
Although refinancing has many advantages, there are also pitfalls. You should pay special attention to the following points in order to really enjoy the benefits of refinancing:
- High transaction cost
When refinancing, the closing costs are generally 3% – 6% of the loan amount. So when you decide to apply, you must calculate all the expenses. If the cost exceeds the expenses that can be saved by refinancing, the gain is not worth the loss.
- Lose the original discount
After refinancing, interest on new loans may be reduced. However, the original additional preferential terms will disappear. So the lender needs to weigh which way can maximize the interests.
- Actually pay more interest
After extending the loan term, although the monthly repayment pressure is less, in the long run, due to sometimes extending the repayment term, it is possible to pay more interest on the total amount.
- The house needs to be revalued
The valuation at the time of purchase is likely to be different from that at the time of refinancing. If a decline in home valuation means a decrease in net asset value, the value of refinancing products offered by banks may be lower than expected.
5.Don’t just look at the interest rate
Falling interest rates are the main motive for refinancing. However, if we only look at the interest rate and ignore the loan term and service charge mentioned above, we may lose the watermelon and pick up the sesame. We must make a comprehensive evaluation.