Reasons to Refinance
Here are five solid reasons to consider refinancing your existing mortgage:
1. Reduce Your Monthly Mortgage Payment
The slightest percentage drop can have a large effect when calculated over 15 or 30 years, and so you definitely should consider
refinancing when you’re able to lock in a lower interest rate. But what many do not know is that you can also change the terms of
your mortgage to lower your payment. Switching from a 15 to 30-year term will immediately reduce your mortgage payment.
Conversely, if you are looking to save money in the long run, you can save thousands of dollars by refinancing from a 30-year to a 15-
year mortgage. As most traditional mortgages include principal and interest payments, still yet another way to reduce your monthly
mortgage payment is to switch to a program with interest only payments. Refinancing your existing mortgage is a surefire way to
lower monthly payments immediately.
2. Access Cash Quickly and Safely
Not all types of property offer cash-out loans, but if yours does, then you can consider the equity in your home as a kind of savings
account that may be accessed through a cash-out refinance. If you have equity, you can use the cash to finance any number of life-
changing events. You might pay for new home improvements, take a vacation, pay off credit card debts (since credit card debt
interest is compounded whereas mortgage interest is relatively simple and tax deductible, this is an especially attractive option), or
pay for your child’s education.
The cash-out refinance process is a simple. Any new loan will be larger than the remaining balance of your current mortgage, and
will be based on the equity you’ve already established in the house. Let’s say your existing loan is $100,000. You might refinance it
with a loan of $130,000, $100,000 of which will pay off the existing loan. After origination fees for the new loan, you might be left with
$27,000 to cash out with…that’s a nice sum of money to apply to other debts, to reinvest in your home, or to help put a child through
college.
3. Switch from an Adjustable Rate Mortgage (ARM) to a Fixed-Rate Mortgage
An adjustable rate mortgage (ARM) is a particularly attractive option for homeowners who do not plan to stay in their home for an
extended time period. If you’re willing to risk the possibility of an upward market interest rate adjustment, then an ARM is a good
option. An ARM could lower your monthly payment dramatically when compared to a 30-year fixed-rate mortgage, for example. On
the other hand, if you do plan on staying longer than a 3-5 year period in your home, you might want to switch to a 15, 20, or 30-year
fixed-rate home loan. Doing so will provide stability over time, and protect you against market fluctuations.
4. Erase your Private Mortgage Insurance (PMI)
Private Mortgage Insurance (PMI) is designed to secure the lender from the borrower defaulting on his/her loan. Often in mortgage
loans, especially in low (less than 20%) down payment purchases, PMI is required. Over time, as you demonstrate your ability to
make payments on time, and as your home value increases, you may be eligible to refinance your home without PMI playing a future
role.
Here are five solid reasons to consider refinancing your existing mortgage:
1. Reduce Your Monthly Mortgage Payment
The slightest percentage drop can have a large effect when calculated over 15 or 30 years, and so you definitely should consider
refinancing when you’re able to lock in a lower interest rate. But what many do not know is that you can also change the terms of
your mortgage to lower your payment. Switching from a 15 to 30-year term will immediately reduce your mortgage payment.
Conversely, if you are looking to save money in the long run, you can save thousands of dollars by refinancing from a 30-year to a 15-
year mortgage. As most traditional mortgages include principal and interest payments, still yet another way to reduce your monthly
mortgage payment is to switch to a program with interest only payments. Refinancing your existing mortgage is a surefire way to
lower monthly payments immediately.
2. Access Cash Quickly and Safely
Not all types of property offer cash-out loans, but if yours does, then you can consider the equity in your home as a kind of savings
account that may be accessed through a cash-out refinance. If you have equity, you can use the cash to finance any number of life-
changing events. You might pay for new home improvements, take a vacation, pay off credit card debts (since credit card debt
interest is compounded whereas mortgage interest is relatively simple and tax deductible, this is an especially attractive option), or
pay for your child’s education.
The cash-out refinance process is a simple. Any new loan will be larger than the remaining balance of your current mortgage, and
will be based on the equity you’ve already established in the house. Let’s say your existing loan is $100,000. You might refinance it
with a loan of $130,000, $100,000 of which will pay off the existing loan. After origination fees for the new loan, you might be left with
$27,000 to cash out with…that’s a nice sum of money to apply to other debts, to reinvest in your home, or to help put a child through
college.
3. Switch from an Adjustable Rate Mortgage (ARM) to a Fixed-Rate Mortgage
An adjustable rate mortgage (ARM) is a particularly attractive option for homeowners who do not plan to stay in their home for an
extended time period. If you’re willing to risk the possibility of an upward market interest rate adjustment, then an ARM is a good
option. An ARM could lower your monthly payment dramatically when compared to a 30-year fixed-rate mortgage, for example. On
the other hand, if you do plan on staying longer than a 3-5 year period in your home, you might want to switch to a 15, 20, or 30-year
fixed-rate home loan. Doing so will provide stability over time, and protect you against market fluctuations.
4. Erase your Private Mortgage Insurance (PMI)
Private Mortgage Insurance (PMI) is designed to secure the lender from the borrower defaulting on his/her loan. Often in mortgage
loans, especially in low (less than 20%) down payment purchases, PMI is required. Over time, as you demonstrate your ability to
make payments on time, and as your home value increases, you may be eligible to refinance your home without PMI playing a future
role.
| Registered mortgage broker NYS Banking Department. Loans provided through third party lender |
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