If you’ve looked at your mortgage statement recently and wondered, “Should I refinance my home?” you’re not alone. While there are clear advantages to refinancing your home mortgage, it pays to know the details before making the leap.
When you refinance your mortgage, you’re replacing your existing mortgage with an entirely new mortgage. Here are four common reasons why people refinance their home:
- To shorten their loan term (e.g., from 30 years to 15 years)
- To lower their monthly payment
- To consolidate debt
- To switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, or vice versa
- Rate-and-term: This allows you to refinance your existing mortgage balance in order to change the interest rate and/or term of the loan without advancing new money on the loan; the term is the number of years it will take to pay off your mortgage, assuming you always pay the amount due on time. This differs from a cash-out refinance in which the new money is advanced.
- Cash-out: For homeowners with equity in their homes, you’ll take out a new mortgage for more than your current loan’s balance. From there, you’ll receive the difference between your current mortgage balance and the new mortgage in cash. Continue reading What Happens When You Refinance Your Home Mortgage?