Why Refinance?

Published on November 7, 2016

– 5 min read

Asking if refinancing your mortgage is a good idea is one of the top mortgage questions people ask.

Here are a few common reasons people decide to refinance. See if any might apply to you.
#1 Lower Mortgage Payment

Things may have changed since you closed your current loan. Interest rates may have moved, and the opportunity to refinance at a lower rate could lower your monthly payment. Your personal situation may have changed as well. For instance, if your credit score is significantly better than the last time you applied for a loan, you may qualify for a better rate.

#2 Faster Loan Payoff

For many, housing expenses make up a large part of the monthly budget. The idea of paying off your mortgage and owning a home outright is attractive to many. If interest rates are more favorable than when you closed your last loan, you may be able to refinance into a shorter loan term while keeping a similar monthly payment. Or, if your financial situation has improved since your last go around, you may be interested in in making a higher monthly payment in exchange for a quicker payoff.

#3 Eliminate Mortgage Insurance

Saving a large amount for a down payment can be difficult. You may have chosen a low down payment loan to purchase your home, and you pay mortgage insurance as a result. But over time, you might have gained a fair amount of equity, either by paying down the loan or through home value appreciation. Refinancing a loan could lead to more favorable terms, and it could also help eliminate your monthly mortgage insurance payment.

#4 Get Cash Out

Many people tap the equity in their home, converting their equity to cash through a refinance. In many cases, the interest rate you would pay on money borrowed against your home could be significantly lower than other sources. As a result, cash-out refinance loans are often used to consolidate debt, pay down credit cards, or send a child to college (used as a substitute for student loans). Cash out loans can also be used to reinvest in the property and finance home improvements, like remodeling a kitchen or adding a bathroom, which could increase your home’s value.

#5 Change Loan Terms

Another a common reason people refinance is to switch from an ARM to a fixed mortgage. ARM rates generally have lower initial interest rates when compared to fixed rate mortgages. But with that lower rate comes the risk of the payment adjusting over time: after the initial period, the rate fluctuates with the market. At a certain point, you may want to eliminate the risk of not knowing what your mortgage payment will be every month, and refinancing into a fixed rate mortgage could give you that stability.

If you have a question about your particular scenario, chat with one of Clara’s licensed Loan Specialists, or see your rates in just 3 minutes.

Jack Grace
Jack Grace is a licensed Loan Specialist at Clara. Outside the mortgage world, you’ll find him at a Giants game in San Francisco, at the beach, or exploring the Bay Area with his dog, Lucy.
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