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When you refinance your mortgage, you're actually replacing it with a brand new loan. In doing this, expect to go through a mortgage application process similar to what you experienced with your original mortgage. Refinancing can be a sound financial choice that can allow you to meet a variety of needs:
- Reduce your monthly payments by taking advantage of lower interest rates or extending the repayment period.
- Reduce your interest rate risk by switching from an adjustable-rate to a fixed-rate loan or from a balloon mortgage to a fixed-rate loan.
- Reduce your interest cost over the life of your mortgage by taking advantage of lower rates or shortening the term of your loan.
- Pay off your mortgage faster (accelerating the build-up of equity) by shortening the term of your loan.
- Provide funds for major expenses or to consolidate debts.
Rate-Term Refinance vs. Cash-Out Refinance
A rate-term refinance has a loan amount that is just enough to repay the balance of the existing mortgage. The purpose of the loan could be either to reduce your interest rate, adjust your loan term, or both. A cash-out refinance, on the other hand, has a loan amount that exceeds the current mortgage balance. The higher loan amount converts some of your home equity into cash proceeds, which you receive at loan closing.
A Good Rule of Thumb
A good rule of thumb is that if interest rates are 1/2% to 5/8% lower than your current interest rate, it may be a good time to consider a refinance.
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I WOULD LIKE TO SPEAK TO SOMEONE ABOUT A REFINANCE
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