What Is a Home Loan Refinance?
A home loan refinance pays off your existing mortgage with a new home loan. You may refinance with your existing lender or with a new lender. Depending on the lender, you may have to wait a certain period of time after closing on your mortgage before doing a home loan refi.
When you refinance, your lender will use the new loan proceeds to pay off your existing mortgage so that you only have one mortgage payment. By contrast, borrowers often take out home equity loans or home equity lines of credit as second mortgages.
Keep in mind that there may be closing costs associated with your refinance. But many borrowers find that, oftentimes, the benefits far outweigh the costs.
Home Loan Refinance Benefits
Saving on Interest
Saving money on interest is one of the primary reasons many people feel motivated to do a home loan refinance. Market conditions change often, which means interest rates do as well. You could be overpaying on your home loan if interest rates have gone down since you first closed on your mortgage. If so, you’ll likely want to see whether you could save money by qualifying for a lower interest rate through a home loan refinance.
Curious to see just how much you could actually save? NerdWallet offers insight into current mortgage interest rates. Using the drop-down box, you can compare interest rates on average 30-year fixed-rate mortgages, 15-year fixed-rate mortgages, and 5-year adjustable-rate mortgages.
Once you know the average interest rate currently being offered, use a mortgage refinance calculator to see exactly how much you’re likely to save. Simply plug in your original loan amount, interest rate, loan term, and years remaining, along with other loan specifics for your existing mortgage. Then put in your new loan terms, such as your remaining balance, appraised value, interest rate, loan term, and closing costs.
The calculator will generate a monthly payment breakdown and show you how much you would pay for both your existing mortgage and your new mortgage side by side. This will give you a better idea of your cost savings. You can play around with the figures, selecting different loan terms and interest rates until you find what works best.
Extending Loan Term
While saving on interest is a major incentive for doing a home loan refinance, there are other reasons you may find it beneficial to refinance your existing mortgage. Let’s say you have a great interest rate already. While refinancing may not save you much money on interest, it could still lower your monthly mortgage payment.
When you refinance, you have the option to change your loan term. For example, you can shorten the length of your loan if you want to pay off your loan sooner. On the other hand, you can lengthen your loan term and spread out your remaining mortgage balance over a longer period of time. Lengthening your loan term is a good option if you’re on a tight budget and looking to free up some cash by reducing the amount of your monthly mortgage payment.
Cash-Out Refinances
Strapped for cash? Interested in an investment property that’s a little out of your price range? Need funds to make home improvements or repairs? If you’re in need of money, doing a cash-out refinance could enable you to access the funds you need to make your next financial move.
When you do a cash-out refinance, you take out a new mortgage for a larger amount than what you currently owe on your existing mortgage, borrowing additional money from your home equity. Once you pay off your current mortgage and any closing costs that are rolled into the loan amount, you’ll get a check from your lender for the remaining funds.
Cash-out refinances are good options for those looking to borrow money because they usually offer lower interest rates than credit cards and other loans. Generally speaking, cash-out refinances allow you to borrow money at a lower cost than other types of financing.
So just how much money will you be able to borrow? That depends on your lender and how much home equity you have, which varies based on your home’s appraised value and loan balance. The more money you’ve repaid on your mortgage, the more equity you’ll be able to tap into, and the more cash you’ll be able to access. Typically, though, lenders will only allow you to borrow 80 percent of your home’s value. In some instances, however, you may be able to borrow 100 percent of your home’s appraised value. Talk to your lender about your options.
Refinance With Capital Credit Union
You have many options when it comes to home loan refinances. For instance, you can choose a fixed-rate or adjustable-rate mortgage, a standard refi or cash-out refi, and whether you want a shorter or longer loan term. If refinancing sounds like something you’re interested in, Capital Credit Union will help you figure out the way to go.
We strive to understand each of our members’ financial situation and goals. Once we do, we’ll work to find the solutions most well-suited for you. Speak with a member of our home loan team today. Whether you’re interested in saving on interest or accessing more cash, we’ll find the home loan refinance that suits your needs the best.