Refinancing an existing mortgage is when the original loan gets replaced with a new one.
What are the benefits of refinancing? Perhaps more important, when is the right time to refinance your home mortgage?
A refinanced mortgage will always provide a tangible net benefit to the applicant.
Here are some of those benefits, to name a few:
– Refinance into a lower interest rate
– Change from adjustable-rate (ARM) to fixed-rate
– Shorten the term of the existing mortgage.
People also like to refinance their homes to turn their home equity into get cash. This cash is often used for home improvement and debt consolidation.
Refinancing into a lower interest rate
If you can get an interest rate of at least 1% lower than the original rate, consider refinancing. This will allow you to build equity in your home quicker while lowering your monthly payment.
When interest rates fall, maintain a similar monthly payment to the one you have now and reduce the term.
Reducing your term means you’ll be able to save that much in interest. For example, if you have a 30-year, $100,000 mortgage with a fixed rate of 8%, your monthly payment is $733.76. Consider that you can refinance this mortgage to a rate of 4%. This will allow you to cut the life of the loan in half and wind up having a monthly payment of $739.68.
Adjustable-rate to fixed-rate mortgage
You likely chose an adjustable-rate mortgage (ARM) because of its lower rates to start. You also know that with each rate adjustment comes the possibility that the rate could increase. It can increase to a point where you are paying a lot more than you would like to. Changing from an adjustable-rate to a fixed-rate loan will allow you to take your mind off of future hikes in interest rates.
If you’re noticing a large difference in adjustable-rate mortgages versus fixed-rates, and you’re planning on staying in your house for a short time, you can refinance to an ARM from your fixed-rate to reduce your monthly payment. This can be even more prudent if you don’t plan on residing in your house long enough to see interest rates start to rise.
Wondering whether you should refinance? Ask one of our Loan Representatives to review your scenario.