When you refinance your home, you are replacing your current home loan with a new one. This new mortgage comes with a new term and interest rate, which can lead to lower monthly payments or the ability to pay off your home more quickly. Ultimately, refinancing your home is an opportunity to save money on your mortgage.
Benefits of Refinancing
There are many potential benefits to refinancing your home. The main reasons homeowners choose to refinance are for a lower interest rate, a decreased loan term and the ability to tap into the home’s equity.
Lower Interest Rate
The most common reason people refinance is for lower interest rates, leading to more affordable monthly payments, and less money spent overall on your investment. Reducing your interest rate not only helps you save money, but it also increases the rate at which you build equity in your home.
Shorter Loan Term
When interest rates are low, some homeowners will have the chance to cut their loan term way down while keeping monthly payments relatively the same. Homeowners might refinance their home to pay off their loan faster, leaving them mortgage-free.
Tap into Equity
A Cash-Out Refinance allows you to take equity from your home and use it as cash to deal with a financial emergency or finance a large purchase. For example, many homeowners will access their home’s equity for a remodel, since that remodel will ultimately add to the value of their home. Others may use the cash to consolidate debt. Just be prudent with this debt rather than returning to overspending once it is paid off.
Other possible benefits:
- Eliminate Private Mortgage Insurance (PMI) if your home value has increased enough and meets termination requirements. If your loan includes PMI, contact your lender for further details.
- Adjust your loan type from Fixed Rate to Adjustable-Rate or vice versa depending on what types of loans your lender offers.
Types of Refinancing
There are two types of refinancing, rate-and-term refinance and cash-out-refinance. A rate-and-term refinance is best for those whose financial status has changed and they wish to pay their house off early or a homeowner whose current interest rate is higher than the market rate. A cash-out refinance, on the other hand, would allow a borrower to take some of the equity out of their home and use it as cash for other purposes.
Refinancing when interest rates dip is a smart move and may save you money. If you’re looking to lower your interest rates, decrease your loan term or tap into your home’s equity, refinancing might be right for you. Speak with a Citizens Bank Mortgage Expert to see how refinancing could better your financial future.