Reasons To Refinance
The most common reason to refinance your mortgage is to get a lower interest rate. This simply means that you swap a higher interest rate to a lower one. This can help you save a lot on your monthly mortgage payments. In addition, this can help you save thousands on interest over the term of your loan.
Change Your Mortgage Type.
You chose a loan type when you bought your home. This could be a 5/1ARM, a 15 year fixed rate, or a 30-year fixed rate. You have the option to change the loan type when you refinance.
Imagine that you had an adjustable-rate mortgage (ARM), which offered low introductory rates but is now increasing in rate. You can lock in a fixed-rate mortgage and get a consistent monthly payment.
Perhaps you were not eligible for a VA loan when you bought your home. Refinance your home and get the VA loan benefits, such as no PMI and lower interest than conventional loans.
To take advantage of a lower rate and pay your mortgage off faster, you can switch to a fixed rate for 30-years to a fixed rate for 15-years.
You Can Get Money For Home Improvements
You may be eligible to receive cash-out financing if you have enough equity in the home to finance a kitchen remodel, new siding, or other home improvements you've wanted to complete. Cash-out refinancing allows you to refinance your mortgage for more than you owe and still have the money you need to spend.
If your mortgage balance is $150,000 and your home is worth $250,000, then you can refinance your mortgage to $175,000. You'd then have $25,000 to improve your home. Be sure to refinance at a rate that is lower than what you currently pay.
A cash-out refinance is preferred by many homeowners to a Home Equity Line of Credit (HELOC), as the interest rates on a Cash-Out refinance are typically lower than those of a HELOC. A cash-out refinance will replace your existing mortgage. A HELOC, on the other hand, is an additional loan that you have to cover your existing mortgage. To refinance your mortgage, you will need to pay closing costs. Make sure to consider all options and decide if a cash-out refinance is right for you.
Increase Equity Faster
A shorter loan term will lower your interest rate and allow you to pay your principle off faster. This will also help you build equity faster. A shorter-term will typically result in a lower interest rate.
Depending on the current interest rate, you may be able to reduce or maintain your monthly payment and pay off your loan faster.
If you own your home for five consecutive years and have a fixed 30-year mortgage rate of 6.5 percent on loan with a balance equal to $250,000, your current monthly payment would be approximately $1,700. If you refinance to a 20-year loan at 3.5 percent, your monthly payment would be $1.450. This is a reduction in monthly payments of approximately $240 and an interest saving of almost $160,000 over the loan's life. In addition, this would reduce your loan term by five years and increase your home equity quicker.
