What Is a Refinance?
A refinance replaces your current mortgage with a new mortgage. The new loan pays off your existing loan, and you begin making payments on the new mortgage.
Why Refinance?
The most common reason to refinance is to take advantage of lower interest rates. However, there are several other reasons homeowners choose to refinance:
- Lower their monthly payment
- Reduce their interest rate
- Change from a 30-year loan to a 15-year loan
- Switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage
- Remove mortgage insurance
- Consolidate debt
- Access home equity for home improvements or other expenses
- Remove a borrower from the loan due to divorce or other life changes
What Does a Refinance Cost?
A refinance has many of the same costs as obtaining your original mortgage, including lender fees, title fees, and other closing costs.
In many cases, these costs can be included in the new loan amount, reducing or eliminating the need to bring cash to closing.
When Can I Refinance?
Most homeowners can refinance after making six on-time mortgage payments, although some loan programs may have different requirements.
Types of Refinances
Rate-and-Term Refinance
A rate-and-term refinance is designed to improve the terms of your mortgage. The goal is typically to:
- Lower the interest rate
- Lower the monthly payment
- Change the loan term
- Convert an adjustable-rate loan to a fixed-rate loan
No significant cash is received by the borrower at closing.
Cash-Out Refinance
A cash-out refinance allows you to access a portion of the equity you have built in your home.
Common uses include:
- Home improvements
- Debt consolidation
- Paying for education expenses
- Major purchases
- Financial planning opportunities
With a cash-out refinance, you receive funds at closing in addition to paying off your existing mortgage.
How Do I Know If Refinancing Makes Sense?
Every homeowner’s situation is different.
Before recommending a refinance, we’ll review the costs and benefits together. We’ll look at factors such as your monthly savings, how long you plan to keep the home, your financial goals, and the total cost of the transaction.
In general, if your goal is to reduce your monthly payment, the savings should typically recover the cost of the refinance within a reasonable period of time.
The right time to refinance isn’t based solely on interest rates—it’s based on whether the refinance helps you achieve your financial goals.
Wondering if refinancing makes sense for you? Contact me for a personalized refinance analysis. I’ll help you compare your current loan to today’s options so you can make an informed decision.