Mortgage rates are now at historic lows, prompting a flurry of homeowners who are rushing to refinance. The refinancing process isn’t that much different from the process you followed to get your first mortgage.
In the simplest of terms, refinancing a mortgage lets you take out a new mortgage loan to pay off your old loan. Your new loan will have a different interest rate and terms, and may even be from a different lender than the one you originally worked with.
With this new loan, you will essentially be resetting the repayment clock, increasing the payment schedule, and giving you the chance to get terms that suit you better.
There are a number of reasons to pursue a refinance; the biggest of which is to lower your interest rate. If you can reduce your rate significantly, refinancing is likely worth the effort as long as you plan to stay in your home long enough to recoup the closing costs.
There are a number of advantages and disadvantages to pursuing a refinance.
Pros of Refinancing Include:
– Lower interest rates
– Lower mortgage payments
– Decreased term of your loan
– Quicker payoffs
– Ability to tap into your home’s equity and cash out at closing
– Consolidate debt
– Ability to change from adjustable-rate to a fixed-rate mortgage, or vice versa
– Ability to cancel mortgage insurance premiums
Cons of Refinancing Include:
– Possibly expensive closing costs
– Longer loan term potential that adds to your costs
– Less equity in your home if you cash out
– Borrower’s remorse if the rates drop substantially
– The lengthy process can take between 15 and 45 days or more
Here Are the Types of Mortgage Refinancing You Can Choose:
Traditional rate-and-term refinances: This type of refinancing changes the interest rate of the loan or the term of the loan, and sometimes even both, reducing your monthly payment or helping you save money on interest.
Cash-Out Refinances: These let you turn some of the equity of your home into cash that you can spend, which increases your mortgage debt but also gives you money that you can further invest or use to fund a goal.
Debt-Consolidation Refinances: These resemble cash-out refinances, except you use the equity cash to repay other non-mortgage debt, such as credit card debt.
