The best way to start this process is to establish your goals. The most common reasons for refinancing a mortgage are to get a lower payment, take cash out or shorten your mortgage term
Get a Lower Payment
Here are a few ways you can lower your payment by refinancing.
- You may be able to refinance with a lower rate. If rates now are lower than they were when you bought your home, it’s worth going over the numbers with your loan officer to see what your interest rate could be. Getting a lower rate means lowering the interest portion of your monthly payment – and considerable interest savings in the long run.
- You could refinance to get rid of mortgage insurance –Mortgage insurance is usually only required when you put down less than 20%. Your current interest rate may have a built in Mortgage Insurance Premium or you may be paying Mortgage insurance separately. You could save hundreds of dollars a month by refinancing to stop paying monthly mortgage insurance.
Third, you can get a lower payment by changing your mortgage term. Lengthening your term stretches out your payments over more years, which makes each payment smaller.
There may be other ways you can get a lower payment, so it’s always worth checking with your loan officer to see how they can help you get a payment that fits your current budget. Also, you may consider a refinance with a 15-year fixed rate, ask our loan officers for more details.
Take Cash Out
Refinancing your mortgage is a great way to use the equity you have in your home. With a cash-out refinance, you refinance for a higher loan amount than what you owe and pocket the difference. Any proceeds you receive are tax-free.
Many homeowners use cash from their home to pay off high-interest credit card debt and student loan debt. You can also take cash out to finance home improvements, education or whatever you need. Since mortgage interest rates are typically lower than interest rates on other debts, a cash-out refinance can be a great way to consolidate or pay off debt. Additionally, mortgage interest is tax-deductible, but the interest on other debts usually isn’t.
You may be able to take cash from your home if you’ve been paying on the loan long enough to build equity. Additionally, you may be able to do a cash-out refinance if your property value has increased; a higher value on your home means your lender can give you more money to finance it.