So what is Refinancing?
Refinancing is when you take out one loan to pay off another different. This new loan is secured against your home (or other assets, property etc. as the case may be) If your original home loan had a fixed interest rate which you have since paid way down, then you might like to finance your home again, with a new loan at a lower interest rate -- which is "refinancing."
Is Refinancing the Best Option?
In most cases, home refinancing happens when you have a mortgage on your home and then apply for a second loan to pay off your original loan. When considering the refinancing option, it is important for you to first determine whether the amount you save on interests balances the amount of fees payable during refinancing.
Home Refinancing Benefits
One of the biggest benefits to refinancing is having access to extra cash,
while lowering your monthly mortgage payment. This dream can
actually come true with the right mortgage refinancing.
For many people, your house is the largest asset you will ever own. By the same token, your mortgage payment is probably the largest expense you'll ever have in your family budget. The ability to use this asset to lower your monthly payment and free up some extra cash is an appealing option. Just think of how you could use that extra money... to pay bills? ...to fix up your home? ...college tuition? Just about anything you like.
Lower Your Rate — and You Lower Your Payment
When you bought your house, you were stuck with the interest rates as they were at that time. In addition, other factors come into play, like your credit rating and the amount of your down payment, also helped determine your interest rate. But the biggest factor is always the rates at the time you buy; which is why it is so important to watch rates when you're planning on making a major purchase, like a home. When the Federal Reserve cuts rates, the result may be rates that are much lower than than they were when you first purchased your home.
If you decide to refinance your mortgage when interest rates are lower, you essentially trade the higher rate for a rate that's lower, which means a lower monthly payment for you.
Yes, You Can Shorten the Term of Your Mortgage When You Refinance
Another benefit you get from refinancing is that you can shorten the term of your mortgage. For example, if you had a 30-year mortgage on your home and have been paying it for eight years and then decided to refinance, you could decide to take a shorter term loan of 10, 15 or 20 years. Doesn't sound like a big change, but it can actually end up saving you thousands of dollars of interest. Even better, if the new rate is lower, but you keep paying the same monthly payment you've been used to over the last eight years, you will build up equity in your home even faster, because more of your monthly payment will be applied to the loan's principal.
Get Out of Your Adjustable Rate (ARM) and into a Fixed Refinance Rate (FRM)
As we've seen in recent months, when interest rates are low, the adjustable rate mortgage (ARMs) is very tempting. But, if the market suddenly changes and interest rates spike, the manageable adjustable rate you had could turn into a monster. You may have chosen the ARM because your financial future was unclear, or maybe you weren't so sure how long you'd be living in your home. But now, as your finances and home life have stabilized, you've become financially stronger. And now, you've decided that you want to stay in this home for many years, so it may be beneficial to switch the uncertainty of the adjustable rate to a more stable fixed rate. You'll have better peace of mind knowing that your monthly payment will be the same, regardless of what the market does.
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The Truth about PMI (Private Mortgage Insurance)
If you bought your home and couldn't quite make the 20% down payment, you would have been required to purchase Private Mortgage Insurance or PMI. If, like most people, your house has gone up in value since the day you purchased it, and you've made regular payments on your mortgage, then your equity could be more than 20 percent. If you refinance now, you can eliminate the need for PMI.
If you think of it in financial terms, your house is like a cash reserve. If you have patience, discipline and knowledge of the benefits of refinancing, you can tap into this reserve and make the most of your assets at times you need it most.
To find the best refinance rates available today, please fill out the short form on this site. A loan expert will call you - usually within 24 hours - to lay out your options and help you find the right loan program for you.
Get Cash from Your Home
Yet another benefit to refinancing is that it can help you put some extra money in your pocket to use as you wish. Here's how it works: when you refinance, you can tap into the equity that you've built up in your home and take "cash-out." So you actually refinance an amount larger than your current loan's payoff amount and take the "overage" as cash. This is an easy way to get money for remodeling your home, paying off higher-interest rate bills, or sending your kids to college, whatever you like.
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