When you refinance a mortgage, you pay off your existing home loan and replace it with a new one—often with a lower monthly payment or better loan terms. You’ll work with an independent mortgage broker every step of the way and provide them documents like your bank statements and tax returns to start the process.
How do you know if refinancing is right for you? Let’s take a look at some of the top reasons why people refinance their home loan.
1. Lower Interest Rates and Monthly Payments
This is one of the most common and obvious reasons homeowners decide to refinance. When rates drop, borrowers have the opportunity to get a loan at a lower monthly payment. Who doesn’t want that? To ensure you’re getting the lowest rate available, it’s a good idea to work with an independent mortgage broker who can compare prices across all lenders to find you the best deal for your financial situation.
2. Improved Credit Score
An improved credit score is a great motivation for looking into a potential refinance. If your score improved since you took out your mortgage loan, you may be eligible for a lower interest rate and new loan terms.
3. Obtain Some Extra Cash
A popular type of refinancing is a cash-out refi. In some instances, you may be able to find a reduced interest rate and still take cash out of your home to use as you wish. Many use this to pay off other debt or to help cover the costs for home improvements.
4. Change the Loan Term
Changing the term of a loan is another common reason why someone may refinance. It’s not unusual for a short-term loan to have a lower interest rate. While this may result in a higher monthly payment, you’ll likely be saving money over the life of the loan.
5. Switch to a Fixed Rate
Adjustable-rate mortgages (ARMs) may start with a low interest rate, but often increase significantly throughout the duration of your loan. Switching to a fixed-rate means the interest rate cannot change, making it a smart move if you plan to be in your home for a long time.
6. Remove Someone from the Loan
Whether you’re getting a divorce or just going separate ways from a roommate, another common reason to refinance is to remove someone from the title or loan.
7. Eliminate Mortgage Insurance
Private Mortgage Insurance (PMI) is required on loans with less than 20 percent down at closing. However, once the homeowner has acquired at least 20 percent home equity with a conventional loan, it’s no longer required. If you’ve built up enough equity and are looking to cut the cost of insurance, refinancing could be a great option.
8. Consolidate Debt
For homeowners with a lot of high-interest credit card debt, a refinance can help them consolidate their debt and save on interest payments. If you have enough home equity, this type of refinance may be possible.
Ready refinance your home loan? Talk through your options with a local independent mortgage broker! They will guide you through the process and ensure the refinance meets your financial needs.