Refinancing your Mortgage
What does it mean to refinance your mortgage.
A mortgage refinance can help you reduce your other debts, save you money or even put cash in your pocket. There are 2 main types of mortgage refinancing. They each have benefits and disadvantages and each work slightly different for you, the borrower. If you are considering refinancing your mortgage, you first need to determine if doing so will help you – both now and in the future – and if right now is the most advantageous point in time to do it.
A refi loan allows you to pay the remaining balance on your mortgage at a lower interest rate and spread the payments out over more years. The goal is to have a more affordable mortgage payment.
The ideal time to do a Traditional, or rate-and-term refinance is when the interest rates are lower than they were when you originally financed. This decrease could be due to changes in the prime interest rate, as a result of you building a better credit rating or because you have chosen your lender more wisely.
There may be other times when this type of mortgage refinance is a good idea, too. For example, your expenses may suddenly increase. You may have large, unexpected medical bills you need to pay or you might take in your elderly parents and incur additional expenses caring for them. Whatever the reason, if you can make a mortgage refi work, you can ease the burden of too-high mortgage payments.
With a cash out refinance you can turn the equity on your home into cash. You can use the cash to pay off other debts, such as credit card debt, with the additional money over what you owe on the house. Another option is to take the extra cash yourself to use as you prefer.
There is some risk associated with cash-out refinancing. First, if you are sending the extra cash to pay off credit cards, you are trading those unsecured debts for your secured mortgage debt. That means that not only do you have to deal with collectors if you miss a payment, but now you also have to worry about losing your home.
At the same time, if you are doing a cash-out mortgage refinance to pay off large credit card balances with high interest rates, you might be able to save money if the mortgage interest rate and term of the loan is advantageous. Rather than going into a cash-out refi unprepared for possible disadvantages, it is always a good idea to calculate the break-even point and only settle for a refinance loan that gives you a better deal. A simple form of this calculation is your total closing costs divided by your monthly savings.
FHA Streamline Refinancing
Homeowners with FHA loans can refinance with the FHA Streamline refi program.This refinancing option allows you to refinance your home more easily. You do not need to have a credit check or income and employment verification. The loan goes through more quickly with less hassle for you.
Other Reasons to Refinance Your Mortgage
While rate-and-term refinancing and cash-out refinancing are the two most common types, there are other reasons to refinance your mortgage. For example, if you have an adjustable rate mortgage (ARM), you might benefit from moving into a fixed mortgage loan. If your original mortgage was insured by the FHA, you might refinance to a conventional loan to avoid paying mortgage insurance to the FHA. Finally, a home loan may need to be refinanced as a part of a divorce.
Are you considering refinancing your mortgage but don’t know your options? Simply fill out the convenient form on our home page to get a free no-hassle consultation with lenders in our network to compare refinance loans.