To refinance your mortgage means to replace your current loan with a mortgage that offers better terms. In addition to saving money, you will benefit from a refinance in these ways:
Reduce Monthly Mortgage Payments
Refinancing gives you the option to lower the interest rate on your home loan and to extend the life of your loan. By doing one or both of these, you can significantly reduce your monthly mortgage payment.
Change the Type of Home Loan
Does your current adjustable-rate or balloon mortgage make you uneasy? Refinancing is your opportunity to convert from riskier loans to the stability of a fixed-rate loan while maintaining an attractive interest rate.
Save Money Over the Long Term
By lowering your interest rate when you refinance you will reduce your total interest paid; the bigger the mortgage, the greater your savings.
Cash in Hand
When you refinance, tap into the home equity in your home and walk away with a lump-sum of cash for home improvements, debt reduction, consolidation of bills or any other financial need. Accomplish this with a cash-out refinance or a home equity loan.
To cash-out, take out a mortgage that is larger than your current loan. Pay off your current loan and the difference is yours in cash. Or take out a loan against your home’s equity; this loan being separate from your mortgage loan.
Take Out a Home Equity Line of Credit
Instead of a lump-sum cash payment, you may choose a home equity line of credit (HELOC). You have access to the funds over a set time called a draw period, typically 10 years. You withdraw these funds as needed, simliar to a credit card.
So, when is the right time to refinance? When interest rates are .5% to .625% lower than what you are now paying, it may be time to take advantage of the lower rate.
However, don’t base your decision on interest rates alone. Take into consideration how long you will stay in your home, your financial goals and why you need and how you will use the equity.