When
you refinance your mortgage, you're actually replacing
it with a brand new loan. In doing this, expect to go
through a mortgage application process similar to what
you experienced with your original mortgage.
When you're looking for the right refinance loan, keep
in mind that a mortgage or home equity loan or line
of credit may be a good way to refinance — as
long as it improves on your existing mortgage or opens
up new financial possibilities. This means that there
are scores of refinancing products and programs to choose
from. Your best guide through this maze of options is
to set clear refinancing goals first. |
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What
is your refinancing goal?
For example, do you want to:
Simply lower your monthly mortgage payments? If so, look
for a refinance product with more favorable interest rates
and/or a longer term, but watch for up-front fees and costs.
Shorten your payoff? Switch to a loan with a shorter term,
but watch for up-front fees and costs.
Need money for a remodel or a major purchase? Consider home
equity products, or look for mortgage products that allow
cash-out refinancing.
Refinance quickly? Look for products specially designed
to speed up the approval and closing processes. Some MidAmerican Home Services Mortgage loan programs offer rapid turnaround
as a perk for current customers.
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Refinancing
is often a sound financial choice that can
allow you to meet a variety of needs: |
1. |
Reduce
your monthly payments by taking advantage of lower interest
rates or extending the repayment period. |
2. |
Reduce
your interest rate risk by switching from an adjustable-rate
to a fixed-rate loan or from a balloon mortgage to a
fixed-rate loan. |
3. |
Reduce
your interest cost over the life of your mortgage by
taking advantage of lower rates or shortening the term
of your loan. |
4. |
Pay
off your mortgage faster (accelerating the build-up
of equity) by shortening the term of your loan. |
5. |
Free
up cash for major expenses or to consolidate debts.
Think about how . . . refinancing will support your
overall financial goals. |
Rate-Term
Refinance vs. Cash-Out Refinance
A rate-term refinance has a loan amount that is just enough
to repay the balance of the existing mortgage. The purpose
of the loan could be either to reduce your interest rate,
adjust your loan term, or both. A cash-out refinance, on
the other hand, has a loan amount that exceeds the current
mortgage balance. The difference is converted to cash proceeds
given to you at loan closing, which you borrow against the
equity in your home.
A Good Rule of Thumb
A good rule of thumb is that if interest rates are 1/2%
to 5/8% lower than your current interest rate, it may be
a good time to consider a refinance.
The Right Time to Refinance
Many homeowners consider refinancing when interest rates
suddenly fall or there's a change in financial circumstances.
But even though a large decline in rates or an opportunity
to pay off debts might make refinancing seem like an easy
decision, you shouldn't consider any single variable on
its own. Think about how long you plan to stay in your home,
how you plan to use your equity, and how a refinance will
support your overall financial goals.
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MidAmerican Home Services Mortgage consultants can help
you make the right decisions throughout the home refinancing
process, so contact us
today to learn more or ask questions of our expert mortgage
counselors. |
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Equal Housing Lender