Why would I refinance my mortgage?
- Improving Cash Flow / Reducing Monthly Payment
- Goals to payoff the mortgage in 20 or 15 years
- Cash-Out Options:
- Consolidating your 1st and 2nd mortgage
- Remodel / Renovation
- Funding Children’s Education
- Divorce
- Funding Investment Opportunities
Benefits of Refinancing Your Mortgage
One of the main benefits of refinancing is reducing your interest rate. A lower interest rate will affect the monthly payments, saving hundreds or thousands of dollars a year.
Many people refinance in order to obtain money for large purchases education or to reduce other consumer debt. This is done by refinancing for the purpose of taking equity out of the home referred to as a cash-out refinance. First, the home is appraised. Second, the lender determines how much of a percentage of that appraisal they are willing to loan. Finally, the balance owed on the original mortgage is subtracted. After that money is used to pay off the original mortgage, the remaining balance is loaned to the homeowner.
Before You Refinance Your Mortgage…
Refinancing can be a great financial move if it reduces your mortgage payment, shortens the term of your loan or helps you build equity more quickly. When used carefully, it can also be a valuable tool in getting your debt under control.
Before you refinance take a careful look at your financial situation and ask yourself these questions:
1. How long do I plan to continue living in the house?
2. How much money will I save a month by refinancing?
Note that refinancing generally costs between 2%-5% of the loan’s principal. It may take 1-3 years to reap the cost benefit with the savings generated by a lower interest rate or a shorter term. So, if you are not planning to stay in the home for more than a few years, the cost of refinancing may negate any of the potential savings. Always be cognizant of any way to mitigate debt, build equity, increase savings and pay off the mortgage. Taking cash out of your equity when you refinance doesn’t help you achieve any of those goals.