How does a lower monthly mortgage payment sound? If it sounds good a refinance just might be for you. Refinancing or “refi” for short is similar to applying for a new loan. The new loan pays off your existing mortgage, give you new terms, and new interest rate.
Why Refinance?
In most cases, homeowners refinance to take advantage of a lower interest rate. This generally means a lower monthly payment and a substantial savings in the overall cost of your loan.
Homeowners might also refinance to:
- Secure a Fixed-Rate Mortgage – When a homeowner purchases a home with an adjustable-rate mortgage (AMR), their monthly payment is only stable for an initial period of time. After that initial time period ends, their monthly payment can fluctuate greatly. In order to secure a stable monthly payment, these homeowners may be able to refinance and obtain a fixed-rate mortgage.
- Withdraw Equity – As a homeowner, you may have a significant amount of your net worth tied up in the equity of your house. This is especially true if you have nearly paid off your home. By refinancing, you can withdraw some of the equity in your house in the form of cash. For some homeowners this is a good way to afford a remodel, make an investment or purchase a second home.
Why Not Refinance?
Whether or not refinancing is the right decision for you is ultimately a numbers game. Remember, a Refi is a new mortgage. You will have to pay closing costs. If the amount you are going to save on the total cost of your loan (the amount you borrowed plus interest) is less than you will need to spend, it is best to stick with your current mortgage.
Do you have additional questions about how refinancing works and if it is right for you? Give me a call today.
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