LOWER YOUR MORTGAGE PAYMENTS OR YOUR INTEREST RATE
A mortgage refinance can provide various financial advantages. A strategic refinancing of your present mortgage can provide the following benefits:
- Lower interest rate
- Quicker payment oF your principal to build your home equity faster
- Shorter loan terms
- Greater long-term savings
- Extra in-pocket cash every month
- Cancellation of private mortgage insurance (PMI)
Refinancing your mortgage can decrease your monthly payment, which can help you pay off other bills or allow you to save more money every month. (Who doesn’t want a little extra money for happy hour?) And, if your loan gives you the ability to pay off more of your principal, you’ll gain greater home equity. You can then use the equity to help finance other dreams, such as a new business, an earlier retirement, a new degree or help you to qualify for a home renovation loan.
In addition, if you originally used a loan program that allowed you to make a low or zero down payment on your home, you might have been required to secure private mortgage insurance (PMI) to your loan. Refinancing may allow you to eliminate the PMI, which can lower your monthly mortgage costs quite a bit.
All of these advantages are possible, depending on the type of loan you select.
TYPES OF REFINANCING OPTIONS
There are two major types of refinances: rate-and-term refinancing and cash-out refinancing.
Rate and Term Refinancing
A rate-and-term refinancing allows you to refinance your remaining balance for a lower interest rate and/or shorter loan term. For example, going from a 5.50 percent interest rate on a $500,000 home to 3.5 percent can equal thousands of dollars in savings. Or, if you refinance from a 30 year fixed down to a 15 year fixed, you will pay more each month, but with a shorter loan term, you can also end up paying off your loan sooner and own your home free and clear 15 years sooner.
In addition, a rate-and-term refinancing can change an adjusted-rate-mortgage (ARM) or balloon mortgage to a fixed-rate loan. This way, you can expect the same monthly rate and not end up paying more in interest as time passes.
Cash-out refinancing refers to taking out a new mortgage for more than you currently owe. Though you’re increasing your mortgage, you will receive the difference in cash.
This is how it works: with an original $250,000 loan at a 4.5 percent fixed-rate for 30 years, you can refinance your loan to be $300,000 at a 3.75 percent fixed-rate for 30 years and get cash out of approximately $50,000.
You’ll have a larger mortgage payment and a longer term, but you’ll also have a lot more money in your pocket to pay for existing debt or to use for investments. In addition, the new potential lower rate may still give you a smaller overall monthly payment.
Just like with any loan, there are some costs you can expect from refinancing your mortgage. There are the standard expenses such as fees associated with checking your credit, obtaining an appraisal, miscellaneous escrow company costs, title insurance as well as some lender fees The key element to understand here is to look at the entire picture of your potential refinance – you want to not only focus on the rate and term of the new prospective loan, but just as importantly, the overall costs. Many borrowers fall into the trap of merely looking at the rate quoted and potentially pay thousands of more dollars in costs for that lower rate that is not necessarily in their best interest.
There are a lot of elements to consider when you refinance your mortgage loan. If you decide refinancing is the right choice for you, you’ll want to have a strategic plan to pay it off and make sure that refinancing will actually save you money over time. Fortunately, we can help.
Contact us today to learn more about your home refinancing options. We can help you make sure that you’re making the smartest choice when it comes to refinancing your loan.
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