Refinancing is the process of obtaining a new home mortgage loan with different and better terms to replace the current one. Despite the benefits of refinancing, not everyone has access to the right information to help them make the decision to refinance. This year, five million borrowers just missed their chance to save on a mortgage refinance due to fast-rising interesting rates. Therefore, it is important to talk to an accounting professional who can guide you in the process of applying for a home refinance loan.
The good news is that it is easier to find the financial help you need due to the increasing number of accountants graduating and being hired. In fact, an increasing number of U.S. CPA firms are hiring more accounting graduates into accounting and finance functions this year (36%) compared to 2021 (28%). One reason for this rising number of graduating professionals is the increased availability of online accounting degrees. Today, top universities offer online accounting degrees that are able to reach a wider pool of students due to being based on 100% coursework. This increased accessibility will lead to a 7% growth within the accounting and auditing industry by 2030. More accountants means a greater chance of finding someone who can help you make important financial decisions like refinancing your home mortgage.
When considering an application to refinance a home mortgage, you have to weigh the pros and cons and ask your accountant important financial questions. The pros of refinancing include the possibility of getting a lower interest rate, having a lower monthly payment, getting a shorter loan term, changing an adjustable-rate loan to a fixed loan, or being able to do a cash-out refinance which will allow you to borrow money against your home equity. On the other hand, the cons to consider include the costs of refinancing, the time and effort to apply, the possibility of having only minimal savings, and the risk of reducing the equity of your home.
With all these factors to be considered, here are some questions you can ask your accountant to get you started before applying for a home refinance loan:
What’s My Home’s Equity?
Home equity is the difference between what your house is currently worth and the amount you owe on your mortgage loan. Home equity can increase if the value of your home rises in the current market or if you pay off more of your loan. Your accountant can explain how home equity can give you better terms when you refinance, allow you to remove private mortgage insurance, or give you a bigger cash-out if you do a cash-out refinance.
What is the Cost of Refinancing?
Taking a home refinance loan will include extra costs and fees depending on the lender, the amount of the loan, the value of your house, and where you live. Calculating the closing costs and comparing them with the amount you will save on the new loan payments is important when considering the decision to refinance. Our accountant will be able to inform you of any extra costs and how to budget for them.
Will Refinancing Affect My Credit Score?
Since refinancing requires applying for a new loan, it has the potential to lower your credit score. Frequent refinancing or credit checks can affect your score. Having a new loan means a newer debt replaces an older debt with long-standing payment history which was actually better for your credit. If you are worried about your credit score, your accountant will be able to provide you advice on how to minimize the impact of the loan.
Will I have to Pay Private Mortgage Insurance?
Private mortgage insurance is insurance that protects the lender from financial loss should the buyer fail to make the payments. This is usually included if the homeowner has less than 20% home equity. If your home equity is more than 20 percent by the time of refinancing, the accountant can tell you whether the private mortgage insurance can be removed from the new loan.
What Taxes Do I Have to Pay?
Tax implications of any financial decision is always an important factor to consider, and the same is applicable to getting a home refinance loan. Depending on the type of refinance, it can significantly affect your tax deductions. In cash-out refinancing, you may lose some tax deductions depending on how you use the cash. In order to avoid any disputes over tax it is vital that you speak to your accountant on exactly what you need to pay.
For more information on refinancing your home do read our complete guide.
Author : Ressy James