Refinancing is the process of obtaining a new mortgage in an effort to reduce monthly payments, lower current interest rate, take cash-out of your home for large purchases or remodels, and/or to change mortgage companies.
Most people refinance when they have equity on their home. Equity is the difference between the amount owed to the mortgage company and the current worth of the home.
There are many options for people to refinance into, including 10, 15, 20, and 30-year loans. 10 and 15-year refinance loans are a popular option for homeowners who’ve paid off part of their existing mortgage and don’t want to restart the clock on a new 30-year loan.
Shorter term loans generally offer a lower interest rate, but have higher monthly payments because you your are paying more of the loan principle per month than 30-year loans.
Refinancing back to a new 30-year term may be a good choice for homeowners who want to lock in a fixed interest rate, but don’t want to commit themselves to a higher payment.
Whether you choose a 10, 15, 20 or 30-year loan term, consider the total interest expense as well as the new interest rate and payment.
Cash-out / Cash-in Refinance
Borrowers whose homes have equity within the mortgage can apply for a cash-out refinance loan. Lenders don’t offer cash-out refinance loans to homeowners who owe more than their home is worth.
A cash-out refinance allows borrowers to “pull” equity/money out against their mortgage. Most people use the cash to pay off revolving debt, remodel their home, purchase large items such as a car.
Some homeowners choose cash-in refinance loans, which require them to bring cash in at closing. They do this for four main reasons: to refinance when they owe more on the existing mortgage than the home is worth; to refinance and avoid the extra cost of mortgage insurance; to refinance and avoid the higher interest rate and payment on a jumbo mortgage, and/or to pay a large sum of the mortgage at one time.
If you have any questions or would like to learn more about refinancing your home, we would be happy to discuss all the many options with you. Please call us anytime!