Refinancing your mortgage can be a great way to save money and take advantage of the equity you have built up in your home. Refinancing involves replacing your existing loan with a new one, and there are several reasons why you might want to do this. You may be able to get a lower interest rate, reduce your monthly payments, or access funds without selling your home. When you refinance, you can choose from different types of loans.
You may be able to get a fixed-rate loan or an adjustable-rate mortgage (ARM). A cash-in refinance allows you to make a one-time payment to reduce your loan-to-value (LTV) ratio, which could lower your monthly payment and help you qualify for a lower interest rate. Before refinancing, it's important to consider how long it will take for the costs of refinancing to pay off compared to how long you plan to stay in the home. If rates continue to fall, periodic rate adjustments in an ARM can result in lower rates and smaller monthly payments, eliminating the need to refinance each time rates drop.
Depending on the lender and the terms of the loan, you may need to pay between 2% and 3% of the value of the new loan to complete a refinance. Mortgage refinance closing costs can vary depending on the lender and the amount you are refinancing, but typically range from 2% to 6% of the loan amount. If you have at least 20% of the net worth remaining after the transaction, you can access the accumulated value of your home through a cash-out refinance. Refinancing your mortgage may seem like a risky move, but there are several reasons why it can be beneficial.
In addition to comparing refinance offers against each other, you'll also want to compare what you're seeing to the current terms of your home loan. When you refinance from a 30-year mortgage to a 15-year loan, you can pay off the loan in half the time. Before doing a cash-in refinance, make sure that paying the lump sum won't deprive you of more lucrative opportunities or drain your savings unnecessarily. Some borrowers refinance because they have an adjustable-rate mortgage and want to set a fixed rate.
Refinancing your mortgage could be a good idea if it will save you money or make it easier to pay your monthly bills. How quickly you can refinance your mortgage will depend on the type of loan you have, the type of loan you want to refinance, and the lender's requirements.