REASONS TO REFINANCE
A mortgage refinance can help you lower your monthly mortgage payment, change your loan terms, remove mortgage insurance, or withdraw cash for home improvement projects, or other debt consolidation. There will be times during the life of your loan when refinancing is a good idea, and there will be other times when it’s not the best option.
REASONS HOMEOWNERS CHOOSE TO REFINANCE ARE:
Lower Mortgage Payment
In some cases, switching to a different loan program can help lower your monthly mortgage payment. Refinancing to lower your payment may extend your mortgage terms, depending on the type of loan.
Lower Interest Rate
Your mortgage interest rate is determined by your financial profile at the time of loan origination and greater economic influencers like the Federal benchmark interest rate. If interest rates are lower than they were when you originated your original loan, you may benefit from an interest rate refinance to lower your monthly payment, or reduce the remaining years in the term of your mortgage.
Change from Adjustable-Rate to Fixed-Rate
An adjustable-rate mortgage will fluctuate but a fixed-rate mortgage will maintain the same interest rate throughout the life of the loan. An adjustable-rate mortgage will have a lower interest rate initially but may increase over time. Refinancing to a fixed-rate mortgage ensures the interest rate will stay the same for the duration of the loan term. Adjustable-rate mortgage rates move up and down, and have defined floor and ceiling limited rates during the loan term.
Shorten the Term of the Loan
Mortgage terms range from traditional 15- and 30-year terms to 10, 7, 3, and even 1-year options. Usually, shorter loan terms carry a lower interest rate, and you’ll pay less interest over time.
Refinance to Cash Out Home Equity
If you have at least 20% equity in your home, you can refinance to withdraw home equity. Most financial planners recommend using home equity for something like a home renovation or to responsibly pay down debt. If you have another investment opportunity, consult a financial planner before moving forward with a cash-out refinance.