Does home mortgage loan refinancing make sense for you? Your home is your biggest investment. Even though you still owe money on your mortgage, you can use the equity you've already built to your advantage. If you're not sure whether to refinance right now, take a look at what you need to know about mortgage loans, making changes to the terms, and more.
What Does Mortgage Loan Refinancing Mean?
As the name implies, you are refinancing (or financing again) your home mortgage loan. This doesn't mean you won't have to pay a loan. Instead, think of this financial process as swapping out one loan for another.
Why Would You Refinance A Mortgage Loan?
You don't have to refinance your mortgage. Some homeowners continue to pay their original mortgage for the duration of the loan's term. But if you're not completely satisfied with the interest rate you pay for your loan, have a variable interest rate that continues to grow, want to change the term (length of time) of your loan, or need to remove one owner from the mortgage (after a divorce or other similar type of partner separation), you may want to explore the refinancing options.
Is Refinancing The Right Choice For You?
Do you currently have a high-interest home loan? If the interest rate is significantly higher than what another lender (or sometimes even your own lender) offers, refinancing may save you money. But this doesn't always mean it's the right or best choice for you.
Even though a new interest rate may save you money on your monthly payments, it's likely that you will add several years onto your term—provided that you aren't refinancing the bulk of a 30-year mortgage into a new 15-year loan. A refinanced mortgage is a new loan and will restart your payment term. This means you will lose term years. But you won't lose the money that you've already paid.
A refinanced mortgage will not turn the loan back into the original purchase price of your home. You will still owe the same principle that you are currently paying into. The new loan will take this amount, add on interest (at a new rate), and stretch it out over the new term. If you find a loan at a significantly lower interest rate, you can save time on your overall payment schedule by choosing a shorter term. The lower interest rate and monthly payment may allow you to move from a 30-year mortgage to a 15-year term.
Will You Need To Pay Money To Refinance A Mortgage?
Most mortgages require the borrower to pay closing fees or other administrative fees. Before you choose to refinance your home, weigh the fees you'll pay versus the overall interest rate or term savings. If the lower interest rate/shorter term saves you more than you will spend, refinancing makes sense for you.
Contact a company like University Federal Credit Union to learn more.Share