Your coronavirus stimulus check just might help you reduce your mortgage interest rate.
There are a lot of benefits to refinancing a mortgage. When you can reduce how much you owe your mortgage lender, you have more cash available for other things. Depending on the loan term, your refinance loan could also save you from paying a lot of interest over the life of the loan.
Unfortunately, refinancing can be expensive. That's because you'll incur closing costs that can add up to as much as 2% to 5% of the value of the refinance loan. If you're refinancing hundreds of thousands of dollars in mortgage debt, that's a lot of money you'd have to pay out of pocket.
The good news is, most Americans are getting a $1,400 stimulus check. In fact, some may have already received funds deposited directly into their bank accounts. If you're fortunate enough to not need that money to pay bills or make ends meet, your stimulus check could be just the ticket to securing an affordable new loan for your home.
How a stimulus check could help you refinance
If closing costs have been holding you back from refinancing, using your stimulus money to cover some or all of the costs could be the ideal solution.
While mortgage refinance rates have climbed up from the record lows of last year, they are still very competitive. In fact, if you haven't secured a new home mortgage within the past year or so, there's a really good chance that you could end up reducing your rate enough to make refinancing your home loan well worth it.
But if you don't have several thousand dollars to cover the upfront closing costs of refinancing, you'll need a lender that allows you to refinance without paying those closing expenses up front. You may not find a lot of lenders offering no-closing-cost refinance loans. And the lenders that do offer this will either raise your interest rate or add the customary closing fees onto your loan balance -- both of which end up making repayment more expensive over time.
If you use your stimulus money to cover your closing costs, you won't have to look for a special no-fee refinance loan. You can shop around for the best rate and terms, knowing that the money is there to help pay the upfront fees.
Of course, if you received just one $1,400 check, that likely won't be enough to fully cover the closing costs on most loans -- but it can pay for at least part of it. If you have a larger family and received checks for two adults and several dependents, it's very possible your stimulus payment will be enough to pay for most or all of your closing expenses.
If you use your stimulus check to make refinancing possible, the money could help lower your monthly mortgage payments. This would give you long-term flexibility in your budget and could help save tens of thousands of dollars in interest over time. It could be one of the best moves you make with your stimulus funds.
For more information, read our guide that explores the truth about refinancing your mortgage.
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