6 Reasons to Consider a Mortgage Refinance

Posted by:  Service First
2018-05-27 14:58:50

What To Expect During Closing

6 Reasons to Consider a Mortgage Refinance

Have you been hearing the buzz lately regarding refinancing but aren’t sure what it is or if it’s a good option for you?  Take a few minutes to learn more about mortgage refinancing so you can tackle this decision with more confidence.
First thing’s first -- what does refinancing mean? 
When you refinance your mortgage, you are basically swapping out your original loan for a different one. Ideally, your new mortgage should fit your current personal and financial goals better than your previous mortgage did. There are different types of refinances but the two main types are:
  • Rate-and-term refinance - your new loan typically has a more favorable interest rate and/or a different term (such as switching from a 30-year fixed loan to a 15-year fixed loan)

  • Cash-out refinance - you liquidate some of your home’s equity and get a new loan that consists of your previous mortgage balance plus the cash you took out

The first (and most important) step to take before beginning your refinance journey is determining why you want to refinance in the first place. Pinpointing what you’d like to achieve can give you a better idea of
the type of loan you should be looking to refinance into. People refinance to reach many different goals, but here are some of the more common ones:
You want to lower your monthly payments
You may be able to lower your monthly payments if the rates have dropped since your original mortgage, if you lengthen your loan term due to a decrease in income, if the value of your home has gone up, or if you’re paid of a good portion of your mortgage. 
You want to take cash out
A cash-out refinance, which allows you to use the equity you’ve built in your home to borrow money at a low cost. People often reinvest that cash-out back into their home to make improvements that boost their home’s value. Taking cash out can also be useful if you need extra money for expenses such as education or medical costs and do not have access to other funds.
You want to consolidate debt
You can refinance to consolidate other debts into a single, more affordable payment, as previously mentioned. This can be especially helpful if you have high-interest loans and debts like credit card debt, student loans, or a second mortgage.
The fixed/draw period on your Adjustable Rate Mortgage (ARM) or Home Equity Line of Credit (HELOC) is ending
While adjustable-rate mortgages can save you money on your monthly mortgage payment in the early years of owning a home, once the fixed period ends, your interest rate may increase significantly. You can avoid this by switching from an ARM to a fixed-rate mortgage.
It’s a similar case for home equity lines of credit, or HELOCs. Once the draw period of your HELOC ends, it goes into the repayment period, where your monthly payments become significantly higher since you’re now paying back both variable interest and the principal. You may be able to soften this spike by refinancing your HELOC and your first mortgage into a single new mortgage.
Your credit score has improved
If your credit score has gotten a boost, you may also be able to refinance and get a better rate, which could result in significant savings for you.
You can afford higher monthly payments
If you can afford higher monthly payments, thanks to an increase in income, you could refinance into a shorter loan (for example, from a 30-year fixed to a 15-year fixed) to pay off your mortgage faster and save a significant amount in interest over the life of the loan.

If you can relate to any of these goals, then a refinance may be the right choice for you.  Before you embark on this journey, consider the following tips for a better refinance experience.
  • Clean up your finances
  • Gather your paperwork ahead of time
  • Prepare your home for the appraisal
Ready to get started, or looking for more information? A Service First Loan Officer can help you by completing a financial review to see if a refinance can help you reach your financial goals! 

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