Originally posted on https://7thlvl.com/2019/07/17/need-know-re-amortization/
What You Need to Know About Re-amortization
Are you looking to reduce your mortgage? You might be in luck.
Many homeowners turn to refinancing to change their monthly mortgage payment. However, fewer homeowners decide to pursue re-amortization because it isn’t a well-known option even though it’s one of the top ways to reduce your mortgage.
This process is a less expensive way to refinance your home loan payments. It helps you save money on your monthly payment without the hassle of an expensive refinance. So, how does it work?
Here’s what you need to know to decide whether it’s for you.
What Is Re-amortization?
Re-amortizing occurs when someone decides to pay an additional amount of money to their monthly mortgage payment.
This money reduces the principal balance of the loan. Basically, you can pay a lump sum and ask your lender to reduce your monthly mortgage payment. Re-amortizing your mortgage can be a viable option if you receive a lump sum from another source, such as an insurance payment or inheritance. Many see re-amortized loans as the means to lower their monthly budget without reducing the length of their mortgage.
This option is typically only available for fixed-rate loans. It doesn’t affect the interest rate. However, it reduces your monthly payment and the amount of interest paid on the loan because you reduce the principal amount substantially through re-amortizing a mortgage.
It has no bearing on the loan term. If you are locked into a 30-year mortgage, you’ll still be locked into your 30-year payment after re-amortizing. Therefore, if you are looking to reduce the length of your mortgage, then re-amortizing your loan might not be the right option for you. Still, before you make up your mind, let’s talk about some of the benefits and advantages that you can receive from re-amortizing your loan.
Why Try It?
There are several advantages to re-amortizing your mortgage.
For one, it’s less stringent than refinancing. You don’t have to get a credit check or pay exorbitant fees. Lenders usually charge only a few hundred dollars for this service. Plus, you are giving yourself the means to improve your credit by reducing your debt ratio.
It’s also a popular option for people who have recently locked into a long-term mortgage. After all, if you just locked in a low interest rate, refinancing might not be a financially viable option, whereas a re-amortized loan can give you the best of both worlds. For newer homeowners, re-amortization is a much easier way to reduce your monthly mortgage payment than refinancing, especially if you are within the lockout period for your initial mortgage.
You might also want to re-amortize if you’ve recently come across a windfall of money. The median monthly mortgage payment is over $1,000 and continues to rise. Re-amortizing is a convenient way to reduce your monthly burden and set yourself up for the future.
One thing to mention is that you might not want to consider re-amortizing if you are carrying a substantial amount of high interest credit card debt. Paying that debt down will save you more money in the long run than reducing your monthly mortgage payment. Plus, paying down high interest debt a can have a positive impact on your credit score, allowing you to consider refinancing options if interest rates should go down.
Let’s say you receive a huge bonus from work or a family inheritance. You can re-amortize your mortgage to make sure that you meet your monthly payment when your financial situation is less secure, especially if you work in an industry that is subject to frequent layoffs or other economic shifts. This process will also reduce your loan interest since you’ll be ahead of your payment schedule.
The point of re-amortizing is to set you up with lower monthly payments and this can be a viable option, especially if you are going to be staying in your home for a longer period of time.
Who Can Apply?
Re-amortizing isn’t available to everyone. How do you know if you qualify?
First off, it only makes sense to apply if you have a large sum of money available that you’re ready to invest. Using a re-amortizing loan calculator, you can determine what the impact of your lump sum payment will have on your monthly mortgage payment in the years to come.
You must also have a lender that offers this as a service. Big banks, like JPMorgan Chase, offer this service to their customers. However, they can choose to exclude certain loans from eligibility. Therefore, before making any large payment on your mortgage with the goal of re-amortizing, you should check with your lender to determine if your loan meets their eligibility requirements.
For example, big banks usually deny this service to borrowers using loans backed by the Federal Housing Administration. The Department of Veterans Affairs loans are usually ineligible as well. If you are a new homeowner who used one of these programs, you may be able to make a large payment against your principal mortgage amount, but you will likely not be able to reduce your future mortgage payments. However, you will still be able to benefit from the reduced principal amount in terms of paying less interest over time and also increasing your home’s equity.
The key is finding a lender who is willing to re-amortize your loans. Lenders aren’t obligated to offer this service. Always stay up to date on property buying secrets before purchasing a mortgage. When you initially start shopping for your mortgage, ask your lender if they offer any re-amortizing options and what circumstances you would be allowed to use them in. You may not decide to take advantage of the re-amortized loan option, but it is important to know if that option is available before you apply.
Are you interested in buying or financing a mortgage? We can help. Get a quote for our new home loan or refinancing options today. Our experienced and knowledgeable team can help you determine what you qualify for and if you can take advantage of those options to shift you’re monthly financial obligations.
7th Level Mortgage is a leading one-stop mortgage company providing deeply informed, custom-tailored assistance with every phase of each mortgage transaction. If you are searching for a home loan in New Jersey, Pennsylvania, Delaware, Maryland, New York, or Florida, please contact us today so that we can determine the best Mortgage Lender to place your loan with and get you the best possible rate and program.