Whether you are at a neighbor’s backyard barbecue, an office holiday party or even your kid’s soccer game, you may hear people tout the benefits of mortgage refinancing. Such benefits could include lowering your monthly payment, taking cash out of your home’s equity and paying off your home debt sooner. Understandably, these are benefits that you want to take advantage of as well, but what is a mortgage refinance?
When you refinance your mortgage, you are using your new loan to pay off the existing loan. As a result, your old loan terms will cease. The interest rate, loan payoff date, monthly payment and other features of your new loan will take over. More specifically, there are two primary types of refinancing. These are a rate and term refinance and a cash-out refinance. With a rate and term refinance, you are not taking cash equity out of the house. Instead, you are keeping the outstanding balance roughly the same, and you are changing the rate and term. This often serves to lower the monthly payment and bump up the loan payoff debt. A cash-out refinance involves taking equity out of the house. In some cases, a homeowner can take out equity, set up a lower payment and change the payoff date at the same time.
While there are many benefits associated with mortgage refinancing, the specific benefits that you will enjoy depend on both the established loan terms and the new terms available to you. There are instances when refinancing does not make sense. For example, if your credit score has declined or mortgage rates have increased since you took out your original loan, refinancing may not be in your best interest.
The only way to know with certainty if refinancing is worthwhile is to request a quote. This will enable you to compare all of your options. To inquire about new mortgage terms that may be available to you today, contact the MortgageDepot team today.
Connect with one of our loan consultants to learn more.