Tips for Refinancing Your Mortgage

Considering refinancing your mortgage? Use these tips.

Refinancing your mortgage refers to the process of replacing your existing home loan with a new one, often at a lower interest rate. This can help reduce your monthly mortgage payments or shorten your loan term, allowing you to pay off your mortgage sooner.

There are two main types of refinancing: rate and term refinance and cash-out refinance.

1. Rate and Term Refinance

   When you opt for a rate and term refinance, you would typically secure a new mortgage that features a lower interest rate and potentially a shorter payment term, such as reducing the loan term from 30 years to 15 years.
   
   Due to the history of low interest rates in the past, refinancing a 30-year mortgage into a 15-year mortgage could result in similar monthly payments as your original loan. This is because the lower interest rate on your new mortgage would offset the higher monthly payments that typically come with a shorter loan term.
   
   According to The Truth about Mortgage, it's important to determine your break-even point prior to deciding on refinancing your mortgage rate. This refers to the point at which the savings from your reduced monthly mortgage payment offset the costs of refinancing.

2. Cash-Out Refinance

   With a cash-out refinance, you can refinance up to 80 percent of your home's current value for cash. This is why it is referred to as a "cash-out" refinance. For example, if your home is worth $100,000 and you currently owe $60,000 on your mortgage, a qualified borrower could receive up to $20,000 in cash-out, resulting in a new mortgage balance of $80,000.
   
   A cash-out refinance does not always result in savings from refinancing, but rather offers a way to obtain cash through a lower-interest loan. People may consider a cash-out refinance for various reasons, such as funding a backyard pool or taking a dream vacation.
   
   It's important to note that opting for a cash-out mortgage will increase the amount of your mortgage lien, potentially leading to larger or longer-term payments. Remember that this isn't free money and you'll be required to repay it to your lender.

Deciding whether to refinance your mortgage requires careful consideration of your financial situation, including your long-term goals and objectives. If you have concerns about whether or not to refinance, or want to explore alternative options, it's advisable to consult with a financial planner.

Our knowledgeable staff can assist you in navigating this decision-making process and identifying the best option for your circumstances. For more information, visit our Jefferson Bank Mortgage Center or contact us at (573) 634-0888.