What Does It Mean to Refinance a Home Loan?
Mortgage refinancing replaces your current home loan with a new loan that pays off the original debt. For most homeowners, this gives them the opportunity to get a better rate that lowers their monthly payment while paying off their mortgage more quickly than when they originally got their home loan. However, it’s not always right for everyone, and an ethical loan officer will go over whether or not it’s in their customer’s best interest.
Why Should You Refinance?
If any of these circumstances have changed since you originally financed your home, you should speak to a loan officer today to see if you are missing out on money by not refinancing!
Interest Rates Have Dropped
If mortgage rates have decreased since you took out your mortgage, you could save thousands simply be getting a better interest rate. Even one or two points can save you tens of thousands of dollars in interest fees over the life of the loan.
Your Credit Score Has Improved
If you got a conventional loan, your interest rate was partially determined by your credit score. If your score has improved, you may be able to refinance at a much lower interest rate, which again, can save you a lot of money over the life of your loan.
Consolidate Your Debts
Having high-interest payments for student loans, credit cards, or other debt can be expensive and difficult to keep up with. By refinancing your home loan and taking a cash-out option, you can pay off your other debts and only pay for your home loan. This is especially beneficial if you can get a lower rate when you refinance so you’ll save thousands of dollars in interest from both your home loan and your other debt.
Stop Paying Mortgage Insurance Premiums
If you have an FHA loan and you had a down payment of less than 20 percent, you know you have to pay mortgage insurance premiums every month as part of your bill. Unlike conventional loans, where the private mortgage insurance cancels once you achieve an 80 percent loan to value ratio, with an FHA loan, you pay the mortgage insurance for the life of the loan. Refinancing allows you to get out from under that additional payment and lower your monthly mortgage payments.
Improve the Value of Your Home
Making home repairs can improve the value of your home, so refinancing could act as an investment, especially if you improve the value of your home over what you refinance to increase your equity. If the interest rate of the refi is lowered, you can also save money, so it’s a win-win!