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Reasons to Refinance

Refinancing a mortgage gives homeowners the unique opportunity to lower monthly payments, shorten loan terms or even convert home equity into cash. As with getting a mortgage for a new home, it involves an investment of time and money, so be sure to explore all your options to get the most out of your refi.

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When Is the Best Time to Refinance?

There is no documented “best time” for home owners to refinance, because it all depends on what’s best for you and your situation. Whether it’s because the market rates are low or the equity in your home is high, you can find several great reasons to consider a refi.

Lowering Your Interest Rate

The leading reason to refinance a loan is to secure a lower interest rate, which will put more money in your pocket and more breathing room in your budget. For example, refinancing a $450,000 loan from a 4.75 percent interest rate to a 3.6 percent rate would save about $300 a month. You can even put the savings back into your mortgage to pay it off faster, if you choose.

Shortening Your Loan Term

While a shorter term means higher monthly payments, it also means a faster route to home equity and freedom from mortgage payments. A shorter mortgage also saves thousands of dollars in interest, making your home a much sounder investment.

Converting an Adjustable Rate to a Fixed Rate (or Vice Versa)

Many homebuyers enter into adjustable-rate mortgages with the idea of refinancing before the periodic adjustments begin. Converting to a fixed rate protects you from sharp spikes in monthly payments. On the other hand, homeowners who plan to sell in the near future can switch from fixed-rate mortgages to ARMs to take advantage of lower monthly payments in the meantime.

Turning Your Equity into Cash

Through cash-out refinancing, the equity in a home can finance renovations, fund a child’s college tuition or pay off credit-card debt. A cash-out refi is often a better option than a home-equity loan, because it replaces your first mortgage and frequently has a lower interest rate.

Considerations When Refinancing

While the idea of saving money, shortening a loan term or cashing out equity through a refi may be appealing, it can come with some high upfront costs. Financial experts suggest homeowners closely review a possible refi if they are in the following situations:

  • If you intend to move from your home in the near future, the costs associated with refinancing, including closing costs and other fees, may outweigh the money you will save.
  • If your short-term financial future looks shaky, reconsider a refi. In some cases, the refinancing process may reduce your available cash.
  • If your original mortgage includes prepayment penalties, you should closely review your closing documents, including the Truth in Lending statement. The penalties may not make a refi a worthwhile financial decision.

How We Can Help

When you speak with a Loanwise counselor, you will get an honest, unbiased opinion about your options. After helping thousands of homeowners refinance their mortgages, our experts understand all the opportunities and potential pitfalls involved in the process.

Loanwise prides itself on offering a simple, easy path to refinancing. Our goal is to educate our clients and ensure there is a line of communication open at all times, so there are no unwanted surprises along the way.

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