| What does it mean to refinance? | | | | payments by keeping your payments from increasing. |
| To start, refinancing is when you receive a secure | | | | So how can refinancing lower my payments? |
| loan to replace an existing loan that is secured by the | | | | The main ways people are able to lower their |
| same assets. In other words, you take out a new | | | | payments is by lengthening their repayment term or |
| mortgage to replace the existing mortgage loan you | | | | refinancing at a lower interest rate (if current interest |
| already have on the same asset (your house). | | | | rates fall lower then your current interest rate or |
| What are some reasons people refinance? | | | | your credit improves from when you first obtained a |
| People refinance for different reasons. Some | | | | mortgage). For example, if you have a 15 year |
| homeowners refinance to tap into the equity they've | | | | mortgage and you extend it to a 30 year mortgage, |
| accumulated in their houses, using the funds or equity | | | | then you are paying your mortgage over a longer |
| for other purposes. This type of refinancing is usually | | | | time period so your payments will be less per month. |
| called "cash out" refinancing. In other words, you get | | | | If interest rates fall or your credit improves, then |
| the difference between the value of your original | | | | refinancing to a lower interest rate will also lower |
| mortgage and the amount currently owed. Another | | | | your monthly payments because you will be paying |
| type of refinancing is done when you want to | | | | less in interest per month. However, realize that |
| change your repayment term and/or interest rate | | | | refinancing does come with costs that need to be |
| ("rate and term" refinancing). For example, if you | | | | factored into your decision to refinance. Costs range |
| have an ARM (Adjustable Rate Mortgage), your | | | | from the cost of the appraisal, title search, and |
| payments can eventually fluctuate with the prime | | | | closing costs which can significantly add to the cost |
| rates or current market interest rates charged by | | | | of your loan. Therefore, when speaking with any |
| banks to their customers after a few years. As rates | | | | mortgage professional, make sure you understand |
| go up, so do your payments. Therefore, obtaining a | | | | what the total upfront costs will be when refinancing. |
| fixed rate can be beneficial in stabilizing your | | | | |