Why Refinance Your Mortgage Loan
While most people know that it may be the right time to refinance when mortgage rates drop, there are many other reasons that refinancing may be right for you.
Lower Your Payment
Refinancing offers you several avenues that can lower your payment and put a little more money back into your monthly budget.
Some, such as obtaining a lower rate, are obvious, while others, like removing your monthly mortgage insurance, maybe less so. Taking advantage of a drop in mortgage rates is a simple way to lower your monthly payment. Simply put, a lower rate means less interest, which means more money back in your pocket.
A lesser utilized, but still available method of reducing your payment is to lengthen the term of your loan. Taking your remaining mortgage balance and stretching it out over a longer period will lower your monthly cost.
While your equity has been growing as you make your monthly payments, your home’s value may have been growing as well. If you are currently paying monthly mortgage insurance (PMI), you may be able to take this opportunity to refinance and remove that additional monthly cost. Simply removing mortgage insurance could save you hundreds of dollars a month and thousands a year.
Our licensed Mortgage Consultants can review your situation and help you determine whether these or other refinance options may be able to lower your payment and save you money.
Get Cash Out
If you have built up equity or your home value has been increasing, you may be able to do a cash-out refinance to access some of those funds.
The cash from this transaction can be used for a variety of things including:
- Consolidate high-interest credit card debt.
- Pay off student loans.
- Completing home improvement projects.
- Making a big-ticket purchase such as a car.
This allows you to not only simplify and reduce some of your bills but also take advantage of the tax-deductibility of mortgage interest.
Shorten Your Term
Typically, the shorter the term of your mortgage, the lower the rate you will receive. While this means that your payment may be higher, it also means that you can save thousands of dollars in interests over the life of the loan.
What does this really look like? If you were to have a loan of $225,000 at an interest rate of 3.75%, you would pay approximately $150,000 in interest over a 30-year loan. If you were to instead repay the same loan over 15 years, you would pay approximately $69,500 in interest, saving over $80,000.
Of course, the shorter the loan's term, the lower the rate which means you will save more.
Avoid an Adjustment
If you are currently in an Adjustable Rate Mortgage (ARM) and the initial fixed period is close to expiring, it may be time to consider refinancing. Moving from an Adjustable to a Fixed Rate not only takes away some of the variability but it also gives you the opportunity to save some money by shortening your term, removing mortgage insurance, or take some cash out for other expenditures.
VA IRRRL & FHA Streamline
If you are looking to refinance either a VA or FHA loan that is more than 6 months old, you may be able to take advantage of either a VA Interest Rate Reduction Loan (IRRRL) or an FHA Streamline Loan. With either of these programs, you can take advantage of lower interest rates and decrease your monthly mortgage payment over the life of your loan.
The advantage of these loans includes:
- No home appraisal is required
- No paystubs, bank statements or verification of employment is required
- No credit score requirements
- On a VA loan, a reduced funding fee that’s just .50% of the new loan amount
- On an FHA loan, if your loan is less than 3 years old, you may receive a refund of the upfront mortgage insurance premium that was paid on your existing loan