A tight budget, an expensive home renovation, and the desire to get your home paid off quicker are all good reasons to refinance your home. But what does refinancing your home mean and how can it help you achieve your financial goals? Take a look at the definition of home refinancing and what it can do for you.
What is Refinancing?
When a homeowner is refinancing, it means the homeowner is attempting to acquire a new mortgage for their home. The new mortgage pays off the original mortgage, usually giving the borrowers a better interest rate and/or a shorter term, or even cash.
- To Lower the Interest Rate - Most mortgage lenders say that shaving even .50% off of a mortgage interest rate is a good enough incentive to consider refinancing. The long-term savings by getting a rate reduction can outweigh the cost of a mortgage refinance.
- Shorten the Term of the Loan - The most common mortgage terms are 15-year and 30-year. In some cases, with a lower interest rate, getting a new 15-year mortgage can leave monthly payments very similar to what they were at the 30-year mortgage rate and can get the home paid off much quicker. First Savings even offers 20-year options!
- Changing from an ARM to a Fixed-Rate - Adjustable rate mortgages can offer lower interest rates at times. However, an arm isn’t for everyone. When homeowners need to control their monthly budgets with a more steady payment, changing to a fixed-rate mortgage when rates are low may be the best way to go.
- Draw From the Equity - Sometimes homeowners need large sums of money to cover expenses such as a remodeling project, school tuition, or to consolidate other debts like credit cards and auto loans. It's important to evaluate overall financial health and spending habits before tidying up other debts and expenses using your mortgage.
- Eliminate PMI - Another possible benefit to refinancing is the elimination of private mortgage insurance. If the original down-payment on the home was less than 20%, PMI is usually required by the lender. A borrower may be able to refinance and if the value of the home has increased enough; eliminating PMI.
Points to Consider
- Cost of the refinance - Application fees, title fees, lender closing fees, and loan origination fees are all costs to look into before deciding to refinance. Lenders, like First Savings Mortgage will help homeowners figure out when and if the costs would be recuperated.
- Overall Financial Health - If the main goal of the refinance is to pay off the mortgage earlier, borrowers should also consider their other financial goals. The ability to save appropriately for retirement and pay off other higher interest loans should be factored into the decision to refinance. If refinancing doesn't affect the monthly payment very much, refinancing could be just the ticket to achieving personal financial success.
- Requirements - Contact a First Savings Mortgage lender to find out the requirements for refinancing.
By working with a trusted residential mortgage lender, homeowners can find a loan that is tailored to their specific financial situation, offering just the right term and interest rates. The refinancing process will operate quickly and smoothly, giving them true financial security and peace of mind.