What is a home refinance?
A home refinance is when you, the homeowner, decide to replace one or more existing mortgages on your home, with a new mortgage, that pays off the old mortgage, and results in a new monthly payment, and interest rate.
There are a few reasons why you might want to refinance your home.
1. Lower monthly payments. If you can get a new mortgage with a lower interest rate, or you’ve paid down you old mortgage enough, a new mortgage might result in a lower monthly payment. For example, if you have an existing mortgage with a balance of $100,000, and a monthly payment of $600.00, and an interest rate of 6%, but you have the opportunity to get a new mortgage at 4% would result in a new monthly payment of $477.00, saving you $123.00 per month or $1,476.00 per year.
2. Consolidate mortgages. If you have a second, or even a third mortgage on you home, you may want to get a new mortgage to combine the balances of the first, second and/or third mortgage into one payment. For example if you have a 1st mortgage with a balance of $60,000 and an interest rate of 6%, with a monthly payment of $600.00, and a 2nd mortgage of $30,000, and an interest rate of 5.5% and an interest only payment of $150.00 per month, total payment for the month is $750.00. If you refinanced both of these loans with a new mortgage of $90,000, and an interest rate of 4% the new consolidated payment would be $430.00 per month.
3. Pull cash out. Sometimes you may have enough equity in your home that you can borrow more than the existing first mortgage, and actually pull out cash with the new mortgage. For example if the value of your home is $200,000, and the balance of your existing mortgage is $100,000, you could borrow $170,000 with a new mortgage, and pull out $70,000 at the loan closing.
4. Shorten the payoff date. One possible use of a new mortgage would be to get it paid off sooner. If you took out a 30 year mortgage three years ago, and you can afford a higher payment, you may want to refinance with a 15 year mortgage and pay off the mortgage, thus shortening the payoff date by 12 years.
Whatever the reason, make sure you do your research before you make the decision to refinance or not. Talk to multiple professionals to see if a refinance is better for you. That would include multiple loan agents, and maybe mortgage brokers.
We offer several loan calculators to help you determine what may happen if you take out a new mortgage.