Why you should refinance your mortgage instead of waiting for forbearance and foreclosure extensions
Weighing your options between mortgage refinancing and mortgage forbearance? Here's what you need to know about why refinancing may ultimately be the better bet. (iStock)
The Biden Administration recently announced that it would be taking steps to extend the federal moratorium on evictions, as well as the forbearance protections that are currently in place for home loans. The move is an effort to help both homeowners and renters who have been negatively impacted by the pandemic and are struggling to keep up with their monthly payments.
However, if you're looking to save on mortgage payments or pull out your home's equity, waiting around for these extensions may not be the best course of action. Instead, it may ultimately make more sense to refinance your mortgage. With that in mind, we've listed a few things that homeowners need to know before weighing these two options.
If you're ready to explore your mortgage refinancing options, visit Credible to compare rates and mortgage lenders.
Refinancing may lead to long-term saving
When you look closely at mortgage refinancing and at mortgage forbearance, you can see that one is a long-term option while the other is meant to provide short-term relief. If you choose to do a mortgage forbearance, it will temporarily pause your payment. However, at the end of forbearance, you will have to go back to your existing mortgage conditions.
On the other hand, when you refinance, you permanently change the loan terms by replacing it with a new one. This means that, if you can save money by securing a lower interest rate, you'll be able to enjoy a lower payment for the entire life of your refinance mortgage.
When you're ready to explore how much your monthly payment can change, use an online mortgage refinance calculator to help you determine what your new monthly payment can be with today's low refinance rates.
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Refinancing lets you take advantage of today's low mortgage rates
There’s no getting around the fact that today's mortgage rates are at historic lows. The average interest rate on a 30-year mortgage is currently just 2.98%, according to Freddie Mac. If you can take advantage of those refinance rates, you can undoubtedly save on mortgage interest. However, you won't be able to do so if your loan is currently in forbearance.
Unfortunately, after forbearance ends, there is usually a waiting period before you can take steps to refinance an existing loan. Experian says that you must make at least three consecutive mortgage payments before you can refinance a conventional loan that has been in forbearance. However, the waiting might be different if you have a government-backed mortgage like an FHA loan or VA loan. In the latter case, you would want to call your mortgage lender to discuss your options.
If refinancing makes sense for you, visit Credible to get pre-qualified rates in just minutes without negatively impacting your credit score.
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Refinancing may help you pay off your mortgage sooner
In addition to allowing you to take advantage of record-low refi rates, refinancing may actually help you pay off your home loan sooner than if you put it in forbearance. Put simply, when you refinance, you have the option of switching from a 30-year mortgage to a 15-year mortgage, which can help you in achieving your goal of paying off your mortgage sooner.
However, with forbearance, even though your mortgage payments stop temporarily, you don’t get to skip them entirely. Instead, any payments that you miss on your current mortgage are usually added on to the end of your loan, which means that your loan term is extended longer than you originally planned.
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The bottom line
At the end of the day, mortgage forbearance is meant to be an option that’s there to help people in times of severe financial distress. If you have lost your job due to the pandemic and are completely unable to keep up with your mortgage payments, forbearance may be a decent option. However, if money is tight but you are still able to pay your current mortgage, you may want to consider refinancing instead. Refinancing your mortgage may have more benefits and may ultimately serve you better in the long run.
Visit Credible be put in touch with experienced mortgage lenders who can answer any questions that you may have about the refinancing process.
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