REFINANCE

Benefits of Home Refinancing

Imagine a scenario where you can have access to extra cash, while simultaneously lowering your monthly mortgage payment. This dream can become a reality through mortgage refinancing.

A house is the largest asset you may ever own. Likewise, your mortgage payment may be the largest expense you'll have in your monthly budget. Wouldn't it be great to use this asset to reduce your monthly payment and put extra cash in your pocket? When you refinance your mortgage, you can take advantage of the equity in your home and enable this to take place. Contact us now for a FREE CONSULTATION and see if refinancing is the right choice for you.
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What is Refinancing?

Refinancing is when you apply for a secured loan in order to pay off your existing loan secured against the same assets, property etc. Lets say for example that you bought your house and borrowed $500,000 from the bank at 6% interest rate. Let’s assume that the current interest rates are hovering around the 5% mark and that if you were to get a loan today, you would get it at 5.5%. You could get a new loan at 5.5% and pay off your original loan at 6%, thereby saving a substantial amount on your monthly payments. This would be one example of Re-financing.

Types of Refinance Loans

When you refinance, you have access to all types of loan programs that you would have while purchasing a home. But based on your needs, refinance loans can be classified as serving one of the following purposes:

1. To get lower interest rates and/or lower monthly payments.

When you purchased your dream home, the financial environment dictated interest rates. While certain factors, like your credit rating and the amount of the down payment that you were able to afford, influenced your interest rate, the single most important factor was the prevailing rates at that moment. However, interest rates fluctuate. When the Federal Reserve enters a rate-cutting period, the prevailing rates may become significantly lower than when you originally purchased your home.

By refinancing your mortgage when interest rates are lower, you can exchange a higher interest rate for a lower one, which, in turn, will lower your monthly payment.

2. To shorten the length of your mortgage

Another advantage of home refinancing is that you can shorten the term of your mortgage. Let's say, for example, that you originally had a 30-year mortgage and have been paying it for eight years. Thanks to mortgage refinancing, you can switch to a shorter term of either 10, 15 or 20 years. This can save you thousands of dollars of interest. Also, if the refinance rate is lower, but you maintain the same monthly payment, you will build up equity in your home more quickly, because more of your payment will be going towards principal.

3. To change your mortgage Loan Type (example: moving from ARM to Fixed Rate mortgage)

When interest rates are low, adjustable rate mortgages (ARMs) are the housing market's darlings. However, as interest rates increase, that adjustable rate may not look as sweet. It's also possible that you opted for an ARM because your financial future was less secure, or you weren't sure how long you'd stay in your home. If, however, you've become financially stable and know that you'll be staying in your home for several years, it may be beneficial to swap that fluctuating adjustable rate for a fixed one. You'll have more security knowing that your monthly payment will remain steady, regardless of the current market environment.

4. Cash - Out Refinancing

One way to put more money in your pocket is to tap into the equity you've built in your home and do a "cash-out" refinancing. In this scenario, you can refinance for an amount higher than your current principal balance and take the extra funds as cash. This can provide money for remodeling your home, paying off high-interest rate bills, or sending your kids to college. For example, lets say that you bought your home for $500,000 three years ago and you borrowed $500,000 from the bank. Let’s further assume that your house is now worth $600,000 and you still owe the full principal balance of $500,000 to the bank. Your built up equity in this case would be $600,000 less $500,000 which is $100,000. In this case you could refinance and get a new loan for $600,000 (the value of your house) and get $100,000 in cash from the bank

(The above "cash-out" example is hypothetical scenario only and is not an offer or guarantee.)