Deciding Whether to Refinance
During the term of your mortgage, you may want to refinance to meet a variety of personal and financial goals. Refinancing will completely replace your current mortgage with a new loan that provides you with a new term, rate, and monthly payment.
There are two primary types of refinances, each addressing specific needs of today’s homeowner:
No Cash-out Refinance
You may consider this option to:
- Secure a lower mortgage rate. If current mortgage rates are lower than the rates on your existing mortgage, you could reduce your monthly payments and the total amount of interest that you’ll pay over the life of the loan by refinancing at a lower rate. When considering this option, you’ll want to take into account how long it would take you to recapture all of the costs of refinancing through savings from the new mortgage payment. A Vellum Mortgage Mortgage Expert can help you with a cost-benefit analysis.
- Convert from one type of mortgage to another. If your current mortgage is no longer the right fit, refinancing can help you obtain a different loan type. For example, if you currently have an adjustable-rate mortgage and seek the security of a set mortgage rate and stable monthly payment, you could refinance into a fixed-rate mortgage.
- Build equity faster. If your financial situation has improved since you bought your home, you may want to secure a mortgage with a shorter term such as a 15 year or even a 10 year mortgage. Your monthly payments likely will be higher, but this will help you own your home sooner and pay less in total interest over the life of the loan.
You may consider this option to cash out some of your home’s equity. If you’ve built substantial equity in your home through appreciation and your monthly principal payments, you may be eligible to convert part of your home’s equity into cash through a cash-out refinance. You can use this cash to improve your financial situation or the value of your home through improvements.
Source: Freddie Mac