Refinancing: The Basics
Over the past year, you’ve undoubtedly heard friends and family in discussions about refinancing their homes. But what does that mean, why are they refinancing, and should you consider a refinance?
Refinancing a home mortgage is the process of obtaining a new loan to pay off the existing loan on your property. It can be done for any number of reasons, or a combination of the reasons highlighted below:
- To lower your monthly payment: If today’s interest rates are lower than when you purchased your home, refinancing to a lower rate will reduce your monthly payment, freeing up cash for other expenses or savings.
- To shorten your loan term: With lower interest rates, you have the ability to obtain a shorter loan term instead of a standard 30-year loan. In some cases, the lower interest rate can reduce your term to 15 years while keeping your monthly payments similar to what you’ve been paying & allow you to pay the loan down faster. Even if you refinance with another 30-year loan, a lower interest rate will allow you to apply the money saved from the reduced note to the principal balance, thereby shortening the repayment period & reducing interest charges.
- To change loan types: If you currently have an adjustable-rate mortgage (ARM), locking in a lower fixed interest rate might make sense in the long run.
- To withdraw equity out of your home: If you need money for home improvements or other expenses, it might make sense to take equity out of your home by refinancing.
Every situation is different, so there is no one size fits all answer for determining whether or not you should refinance. Given today’s historically low rates, though, it’s certainly worth looking into. We recommend discussing your options with your lending professional to see if it makes sense for you. There is certainly no harm in asking!
If you have any questions, please contact us at State Title, and we will be happy to help guide you.