Refinance Mortgage Loans

Benefits of Refinancing Your Home

Save Money on Your Monthly Mortgage Payments

One of the most common reasons to refinance is to save money each month on your mortgage payment. If you are able to find a loan with a lower interest rate than what you are currently paying, refinancing can help reduce your monthly payment. Even if your new loan has a similar interest rate as your old one, you may be able to obtain more favorable terms that could also lead to lower monthly payments.

Get Cash From the Equity in Your Home

Another reason people choose to refinance is to get cash out of the equity they have built up in their home. By taking out a new loan that is larger than the balance of your old loan, you can receive the difference in cash. This can be helpful if you need money for home improvements, debt consolidation, or other major expenses. A loan on $50k with 30-year terms and a 5% interest rate beats $50k in credit card debt, hands-down.

Get Rid of Private Mortgage Insurance (PMI)

If you put less than 20% down on your original home loan, chances are you are paying private mortgage insurance (PMI). This is an insurance policy that protects the lender in case you default on your loan. Once you have built up enough equity in your home, you may be able to refinance into a new loan that does not require PMI.

Lock In a Lower Interest Rate

If interest rates have dropped since you originally got your mortgage, refinancing can be a way to lock in that lower rate. This can save you money over the life of your loan and may make your monthly payments more affordable.

Costs of Refinancing Home Loans

There is always a cost to opening a new loan, and refinancing is no exception. You'll still have to pay fees for the lender, the closing attorney, the title lawyer, and the appraisal (sometimes waived), as well as rebuild your escrow account (but, you get your present balance back). Depending on these factors as well as many others, this might make refinancing your house not worth it.

“Months to Recoup” is the term used to describe how long it will take you to recoup your costs if you refinance. If you refinanced for $5,000 and saved $50 a month, it would take 100 months for you to recover your expenses. When inflation, opportunity costs, and so on are taken into account, doing this refinance may not appear so appealing to some people while others find it more attractive. Make sure to speak with your mortgage broker who has experience determining the pros and cons of refinancing, just make sure it’s one you trust to tell you the truth. Even if it doesn't benefit them, an honest loan officer will give you an answer that benefits you rather than suggest a loan that won’t.

Eligibility

When refinancing, you will be asked about the same factors that banks consider when you initially apply for a loan. They want to ensure that the minimal loan requirements, such as credit score and income, are met. A newly updated credit score will be required. They'll want to determine the current market value of your home since the one you took out previously will have changed since the day of closing.

The lender will also evaluate your present assets and savings to ensure you have enough money for closing costs and, on rare occasions, may require you to maintain a certain amount of cash in reserve in order to cover the first few months of payments.