A home loan refinance replaces an existing mortgage with a new one, and you can customize details on the new loan including the type of interest rate, the term length, and the amount borrowed. Speaking with a licensed mortgage consultant will help you set clear financial objectives in order to choose the most appropriate package to refinance your home mortgage.
Should I Refinance My Mortgage?
Whether interest rates are rising or falling, home loan refinance is common and there are several benefits that homeowners find with refinancing:
- Stop Paying Private Mortgage Insurance (PMI) – Refinancing your home could allow you to get rid of your private mortgage insurance. If your home has increased in value or if you have paid enough into your home so that you owe less than 80% of what it’s worth, you can refinance into a new loan and stop paying private mortgage insurance. Eliminating PMI can lower your monthly mortgage payment, which helps you save money.
- Increase cash flow: Refinancing your home could lower your monthly payment, giving you greater financial flexibility. One of the best benefits to a mortgage refinance is the relief they can bring in terms of your monthly expenses. There's no reason to pay more than you need to, and a lot may have changed since you first got your mortgage; your credit score may have improved, rates may have changed, and your home's value, too. Talking to a lending professional about your home refinance options is a good first step in determining how a mortgage refinance could help you.
- Pay off debt: Refinancing could allow you to pay off high-interest credit card debt, private loans, auto loans, or other high-interest debt. With a home loan refinance, interest rates are typically lower and it would make more financial sense to use make payments on a mortgage refinance rather than higher interest loans.
- Getting a better loan: Whether you want to switch from an Adjustable Rate Mortgage to a Fixed Rate Mortgage, or simply wish to lock in a lower rate, a home loan refinance can provide an opportunity to optimize your mortgage.
- Increase your long-term net worth: A lower interest rate on your mortgage means you’ll save money over the lifetime of the loan. You can use the extra cash to buy real estate for retirement, save for your child’s college fund, or buy a vacation home.
- Make purchases with less interest: Financing expensive purchases with your home’s equity lets you take advantage of a lower interest rate than what’s typically available on credit cards. You could use a home loan refinance and pay for a wedding, college, or elderly care and potentially save money with the lower home refinance interest.
- Tax deductible interest: Interest on your home’s mortgage is generally tax deductible. A licensed tax professional could assist you with determining your eligibility for any deductions.
Types of Refinance Mortgages:
- Cash Out Refinance: It allows homeowners to increase the amount that they are borrowing by tapping into their home’s equity and pulling out the cash difference. When a mortgage refinance is used to provide the borrower a lump sum of cash, you can use the cash in nearly any manner you choose.
- Rate and Term Refinance: The interest rate and loan term are the only changes that occur with this type of mortgage refinance.
- Cash In Refinance: A homeowner brings cash to the closing in order to pay down the loan balance that is owed to the lender. This type of mortgage refinance is the opposite of a cash out refinance.
- HELOC Refinance: A Home Equity Line Of Credit lets the homeowner borrow cash against their home equity. The homeowner can take what they need and return for extra funds, unlike a 2nd mortgage.
Things to consider about refinancing your mortgage
A refinance mortgage typically closes more quickly than a purchase mortgage and often requires far less paperwork. When you’re deciding whether to refinance your home, there are key factors to keep in mind.
- How will it affect you financially? Try our mortgage calculator to figure how much refinancing might help your budget.
- How long will you live in the home? If you’re planning to sell or move in the near future, refinancing with a low interest, Adjustable Rate Mortgage could be the best choice.