In simple terms, mortgage refinance means replacing your existing mortgage loan with a new mortgage loan. Homeowners choose to refinance a mortgage for many different reasons. Some want to secure a lower interest rate. Others want to extend the term for a lower monthly payment. Still, others may want a mortgage refinance to get some extra cash for a large expense. As with just about everything, there are both advantages and disadvantages to mortgage refinance.
The pros of mortgage refinance
The primary reason homeowners refinance a mortgage is to get a lower interest rate. A lower rate can be the single biggest benefit of mortgage refinance. If the remaining term of the mortgage is not increased during the finance, a lower interest rate can mean a lower monthly payment, as well as savings on total interest paid over the life of the loan. If a lower interest rate is combined with a lower term for the mortgage loan, it can equal even bigger savings on total interest paid. For instance, if you are currently 5 years into a 30-year mortgage loan and you refinance to a 15-year loan, you will pay off your mortgage must faster. You’ll be debt-free faster and potentially save tens of thousands on interest. It’s important to note that your monthly payment will be higher with a much lower term. If you can handle the larger payment, it can be a big win financially. Ready to refinance now? Learn more about Benchmark Federal Credit Union mortgage loans.
More benefits to mortgage refinance
Some homebuyers opt for an adjustable-rate mortgage (ARM) when they buy a home. They may like the initial perks of that lower interest rate, but not the instability if the rate begins to fluctuate. Another of the benefits of mortgage refinance is the ability to convert from an adjustable-rate mortgage to a fixed-rate mortgage loan. A fixed-rate can give a borrower the peace of mind of having the same monthly payment for the life of the loan.
Cash-out equity is another of the pros of mortgage refinance. If you find yourself in need of cash for a large expense, mortgage refinance can be a solution. You are basically borrowing against the equity in your home and refinancing your mortgage for more than you owe on the principal balance. This will leave you with the cash you need for your large expense. You can pay down debt or complete a home improvement project to increase the value of your home.
The cons of mortgage refinance
While the benefits of mortgage refinance are many, there are disadvantages as well. One of the cons is that you will be applying for an entirely new mortgage. It’s not a guarantee. If your credit score has changed or even your income for that matter, it may affect your borrowing ability and also the rate for which you qualify. Another factor that may negatively impact a mortgage refinance is a lower appraisal. You will need to get your home appraised when refinancing and if it has decreased in value, it may hurt your chances of getting a mortgage refi. Speak to your mortgage lender if you have concerns.
The fees and costs involved in a mortgage refinance
There are many fees involved with a mortgage refinance. They can include origination fees, appraisal fees, application fees, credit report fees and many more. These fees can add up and come as an unwelcome surprise to many borrowers. When shopping for a lender for a mortgage refinance, be sure to get all of the fees and costs upfront in writing. Ask for a detailed explanation of each fee. It’s important to note that mortgage refinancing costs can vary widely from lender to lender. Keep in mind that if you plan on selling your home in a few years, paying all of the closing costs may not be worth it.
Refinancing your home mortgage loan
Whether refinancing your mortgage is a good or bad decision depends on your individual situation and your reason for refinancing. If you can greatly benefit from the pros listed above, it may be a good idea for you. Take the time comparison shop mortgage lenders, including Benchmark Federal Credit Union, to get the best mortgage refinance deal.
Compare rates as well as the total cost of refinancing. Contact a Benchmark FCU mortgage lender if you have any questions regarding mortgage refinancing.