Refinancing a mortgage means paying off your existing loan and replacing it with a new one.
There are many reasons why homeowners opt to refinance, from obtaining a lower interest rate, to shortening the term of the loan, to switching mortgage loan types, to tapping into home equity. Each has its considerations.
Lower Your Mortgage Rate
Among the best reasons to refinance is to get access to lower mortgage rates. There is no “rule of thumb” that says how far rates should drop for a refinance to be sensible. Compare your closing costs to your monthly savings, and determine whether the math makes sense for your situation.
Shorten Your Loan Term
Refinancing your 30-year fixed rate mortgage to a 20-year fixed rate or a 15-year fixed rate is a sensible way to reduce your long-term mortgage costs, and allow you to own your home sooner. As a bonus, with mortgage rates currently near all-time lows, any increase to your monthly payment from switching to a shorter loan term may be negligible.
Convert ARM To Fixed Rate Mortgage
Homeowners with adjustable-rate mortgages (ARMs) may want to change to the comfort of a fixed-rate payment. Mortgage rates for fixed-rate mortgages are often higher than for comparable ARMs, though, so be prepared to pay more to your lender each month.
Access Equity For Projects, Debts, Or Other Reasons
Called a “cash out” refinance, homeowners can sometimes use home equity to retire debts, pay for renovations, or for other purposes including education costs and retirement. Lenders place restrictions on loans of this type.
A refinanced home loan can help you reach specific financial goals or just put extra cash in your pocket each month — just make sure that there’s a clear benefit to you. Paying large closing costs for small monthly savings or negligible long-term benefit should be avoided.
Many lenders offer low- or no-closing costs options for refinancing. If you think you might want to explore your options, contact us and we’ll put you in touch with a lender that can help you out.