REASONS TO REFINANCE

Refinancing is when you replace your current mortgage with a new home loan that has better terms, saving you money over the life of your loan. But there are some things to keep in mind when determining if and when a refinance would be right for you.

These are the most common reasons why a homeowner would want to refinance their mortgage:

Reduce your interest rate.

Many people refinance to get a lower interest rate. Even a 1% difference between your old and new rate can shave a few hundred dollars off of your monthly mortgage payments and save you thousands of dollars over the life of your loan.

Shorten your loan term.

When the market interest rates are lower than the rate you secured when you took out your current mortgage, you may be able to refinance your loan to a shorter term without it increasing your monthly payments too much. If you switch from a 30-year loan to a 15-year loan, it will allow you to build equity in your home much faster.

Even if your monthly payments are higher when switching to a shorter-term loan, you may enjoy significant savings over the life of your loan by making fewer interest payments. For example, while the new loan may come with higher monthly payments, you’ll pay your loan down in less time and significantly reduce your total interest costs, compared with the total interest you would be paying based on your current loan’s term.

Switch from an adjustable rate to a fixed rate or vice versa.

In some cases, you may want to refinance to switch between a fixed-rate and adjustable-rate mortgage (ARM). ARMs typically start with a lower rate than a fixed-rate mortgage, but you can end up with a higher rate later on through periodic adjustments. In this case, switching to a fixed-rate mortgage would protect you against future interest rate hikes.

There are also situations where it makes sense to switch from a fixed-rate loan to an ARM. For example, if interest rates are lower, the periodic rate adjustments can reduce rates and lower mortgage payments. If you plan on staying in your home for a term less than the initial ARM adjustment period, this may save you more money than if you refinanced with a fixed-rate loan.

Consolidate debt.

A cash-out refinance is when you refinance your mortgage to borrow money against the equity in your home, which can be used to consolidate and pay off other debts. With a cash-out refinance, you refinance your mortgage and receive a check at closing when the balance owed on your new mortgage is higher than your prior loan. That difference, minus any refinancing closing costs, is given to you.

With a cash-out refinance, you could also put this money toward other big expenses, like home improvements or college tuition. However, it’s important to note that a cash-out refinance also increases your overall home loan debt.

Lower your monthly payments.

When you refinance to a lower interest rate or extend your loan term, your new loan balance will typically result in lower monthly payments than what you were paying on your prior loan. If this is the case, you’ll have extra money available to put toward other expenses or add to your savings.

WHAT YOU NEED TO REFINANCE

The mortgage refinance process is similar to the process you went through when you took out your prior mortgage. Your loan advisor will review your credit history, financial documentation, and current mortgage terms and payments. These criteria will determine if you are eligible for a refinance and if now is the right time to refinance.

Typically, the following information is needed when applying to refinance:

• Income: Pay stubs, tax returns, and W-2s
• Assets: Bank and security account statements
• Debts: Monthly payment amounts and current balances on car loans, student loans, credit cards, existing mortgage, or home equity line of credit

SHOULD YOU REFINANCE?

Refinancing your mortgage may be the right decision for many reasons. Our team is here to help and can review your current mortgage’s terms and conditions, crunch the numbers, and help determine if refinancing is beneficial for your specific circumstances.