What Does It Mean To Refinance A Loan?
To “Refinance” means to revise an existing mortgage. The current mortgage is paid off and is replaced by a new mortgage. People typically refinance to lower their interest rate, pay off debt, cash-out equity, or change loan type/terms. Today’s mortgage rates are at or near historic lows; and over 50% of homeowners with mortgages pay interest rates above today’s current rates. Many could save thousands by refinancing. Are you one of them?
How much can you save by Refinancing? If you have a 30 year mortgage at 6.2% taken out 5 years ago and have a current loan balance of $188,000. Refinancing into a 3.5% interest rate into a 25 year mortgage would save you $300 per month and over $90,000 over the life of the loan. The savings opportunity in todays low interest rate environment is substantial, but refinancing your home can have certain costs associated with it; therefore you will need to evaluate whether the benefits outweighs the costs to refinance your existing home mortgage.
Below you will find some basic knowledge and things to consider when trying to determine if a refinance makes sense for you.
TAKE CASH OUT
Leverage your investment and use the equity your home has gained over the yearsGood for
Renovating your home
Paying down high-interest debt
LOWER YOUR PAYMENT
As an established homeowner, you can improve your financial security by refinancing to a lower paymentGood for
Lowering your monthly outlay
Planning for retirement
SHORTEN YOUR LOAN TERM
Refinance into a shorter term so you can pay off your mortgage soonerGood for
Reducing the amount of interest you’ll pay
Becoming mortgage-free faster