5 Reasons to Refinance

  1. 1

    Decrease monthly payments from a higher fixed-rate to a lower fixed-rate

    If interest rates fall below your current mortgage rate, refinancing may be a great idea. A drop of as little as .5% could save you thousands of dollars. Our mortgage bankers will help analyze your personal needs and goals and find the right loan at the lowest costs possible. For example, a homeowner’s current rate is 7.5%, and a rate of 6.5% is now available, there’s a 1% savings on the mortgage – less the costs of refinancing. With that small reduction, on a 30-year, $200,000 mortgage, for example, the savings will be more than $50,000.

  2. 2

    Improve monthly cash flow with lower payments

    Cash flow may be tight after moving into a new home. Switching to an adjustable-rate program where the rate is fixed for the next three to ten years could provide the breathing room you need. Similarly, for those who are in a 15- or 20-year term loan, switching to a 30-year term could help with monthly cash savings.

  3. 3

    Switch to a fixed-rate program to eliminate payment changes of adjustable-rate mortgages (ARMs)

    Homeowners with ARMs that have surpassed the initial fixed rate period and are now adjusting may see a rise in their rate due to market fluctuation. Refinancing into a low fixed-rate mortgage is a great alternative.

  4. 4

    Withdraw funds from the equity in a home

    If cash is needed for home improvements, college education, or to consolidate debts, you may be able to refinance 75% to 80% of the current value of your home.

  5. 5

    Shorten loan terms

    Probably the best incentive to refinance is to create a shorter-term loan while keeping the loan payment stable. A borrower can save tens of thousands in interest by reducing the term of a mortgage.

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Types of Refinances

Rate-and-term refinancing

Two of the main considerations in deciding on whether to refinance, what type of loan to get, and and what your monthly payments will be are the rate and term of the mortgage loan.

Rate refers to the interest percent of the loan. Also included, however, are the fees you pay, which combine with the rate to give you the loan's APR. The APR is the single number you want to know in comparing rates.

Term is the length of time over which you repay the loan. Mortgages come in fixed and adjustable rates, which have fixed and adjustable terms. Most mortgages are 30-year fixed, meaning the term is 30 years and the rate is fixed. Adjustable rate mortgages, however, can have much shorter terms.

When selecting a mortgage, you must understand how the interest rate and the loan term interconnect. It's the combination of term and rate that tells you how much you actually pay for the home over the course of the mortgage.

In essence, the lower the rate and the shorter the term, the less you pay in total. In actuality, the choices are more complex.

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Cash-out refinancing

Cash Out refinancing is a loan that pays off your entire mortgage, including refinancing fees, giving you full ownership of your home. If you have enough equity in your home to cover the remaining principal balance on your mortgage, plus refinancing fees, this type of loan may work for you.

For instance, if you own $90,000 in principal on your home, but the home is worth $120,000, you may be able to take out a loan for the $90,000 plus the cost of the refinancing, taxes, and any other fees. This enables you to "cash out" your existing mortgage, giving you a free title to the home.

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