Is Refinancing Right for You?
Because when you refinance you are replacing your existing loan with a new loan,
you will go through a similar process that you went through when you first took
out your existing loan. You will go through the application process, credit and
financial profile check and in most cases an appraisal will be performed on your
home. In addition, when choosing which type of loan to use when you refinance, consider
how long you will be staying in your home, how you plan to use any ‘cash out’ equity
and how refinancing contributes to your long-term financial goals.
Most homeowners consider refinancing when interest rates fall or when they are experiencing
a change in their financial situation. The most common reasons to refinance are:
- Reduce your monthly payments by taking advantage of lower interest rates or extending
the repayment period of your loan.
- Taking ‘cash out’ from the equity in your home to fund a major expense, such as
a home remolding project or to consolidate debts.
- Switching from an adjustable rate or balloon mortgage to a fixed rate mortgage to
reduce the chances of higher interest rates or payment adjustment shock.
- Accelerate the pay off of your mortgage by shortening the term of your loan.
Rate-Term Refinance
A rate-term refinance is when you refinance only your existing mortgage balance
(plus closing costs if you choose). The purpose of this type of refinance would
be to reduce your interest rate and/or change your loan term.
Cash-Out Refinance
When you ‘cash-out’ refinance, you are taking out a new loan with a balance in excess
of your existing mortgage balance. That difference becomes ‘cash-out’ to you at
closing. The primary purpose of this type of refinance would be to fund a large
purchase, fund a home improvement project or to consolidate debt.
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