Refinancing your mortgage can yield some important financial benefits and it’s important to understand when — and why — a refinance makes sense.
Is a mortgage refinance right for you? That’s a good question and one that many homeowners ask at some point. The answer often hinges on things like how long you’ve owned the home, what you’re currently paying for your mortgage, and why you’re considering a refi.
There are several good reasons to refinance your mortgage. If you’re on the fence, it’s important to understand what you could gain by refinancing.
Refinancing can lower your payment
Lowering your monthly mortgage payment can make home ownership less taxing on your monthly budget. There are two ways to lower your payment with a refi: by reducing your interest rate or extending your repayment term.
Reducing your interest rate could save you money over the life of the loan. The resulting lower payment could also free up money that you could apply to other financial goals, such as saving for emergencies or planning for retirement.
You could pay your home loan off faster
While you could opt for a longer loan term with mortgage refinancing, extending the term may mean paying more in interest over the life of loan. And, it also means taking longer to pay the mortgage off.
On the other hand, you could accelerate your home loan payoff by refinancing into a shorter term loan. Refinancing from a 30 year loan into a 15 year mortgage, for example, could allow you to lower your rate and become mortgage-debt free in less time.
The drawback of refinancing to a shorter loan is that it may raise your monthly mortgage payment, so you it’s wise to consider your budget to make sure it’s feasible. Over the long term, however, you could potentially save thousands on interest charges by refinancing to a shorter mortgage term.
You can use a cash out refinance to withdraw equity
A cash out refinance may be an option if you’ve built up a significant amount of equity in your home. There are several ways to put a cash out refinance to work. For instance, you could use the money to:
- Consolidate credit card or other high-interest debt
- Make improvements to your home that increase its value
- Pay for your child’s college expenses
- Purchase a rental property
- Pay medical bills
You can take up to 85% of your equity (meaning the difference between what you owe on the mortgage and your home’s current value) in cash. Once you receive the money from the refi, you can use it virtually any way you like.
Refinancing can get rid of private mortgage insurance
If you have an FHA loan, or you put less than 20% down when you bought your home, mortgage insurance is added onto your loan. This insurance adds to your monthly mortgage payment cost.
Refinancing from an FHA loan to a conventional loan, or refinancing your existing conventional loan into a new one, could reduce or eliminate private mortgage insurance altogether. If you’re reducing your interest rate at the same time, that could mean a lower mortgage payment and more money going back into your pocket each month.
Refinancing your mortgage shouldn’t be complicated
Ready to get a mortgage rate quote, or just have questions about refinancing your home loan? Call us at (888) 316-3934, or use our contact form to connect with a Newfi loan advisor. We’ll review your options to determine a refinance rate and payment schedule that’s designed to fit your situation.