Weighing Your Refinance Options

Whether you take advantage of a lower interest rate on your loan or you extend the number of payments you still must make, it is possible to lower your monthly payment. You may want to use the extra cash you have every month to pay off high-interest debt such as credit cards. You may be able to put that income to use remodeling or renovating your home.

However, there may be closing costs for your new loan that can’t be rolled into the principal. If that’s the case, you will have to come up with these closing costs up front, making it difficult to refinance. If it has already been awhile since you bought your home and it’s been paid down quite a bit, a slightly lower interest rate may not be worth the costs to refinance.

Your financial situation may have changed since you bought your home and took out a mortgage that worked well for you before but doesn’t currently. If you now have the income to pay a slightly higher payment every month but pay your mortgage off faster, it may be worth refinancing to a shorter-term loan, such as a 15-year fixed-rate.

These types of mortgages typically come with a lower interest rate as well, so you get more than one benefit from refinancing to a shorter-term loan. If 15 years doesn’t work, you can customize the loan to just about any yearly increment possible with certain lenders.

If you’ve been paying your home’s mortgage for a bit or the value of your home has increased significantly, you most likely have equity in your home. Equity is the positive difference between what you owe on your current mortgage and how much the home is worth. If you refinance to cash out equity, you can take out a new loan for more than you currently owe, up to the amount the home is worth. Whether you need $20,000 or $100,000, cashing out equity can help you pay off other high-interest debt in the form of credit cards or loans, you can pay for college tuition, buy a new car, or anything else that comes up.

Some people buy a home with two separate loans to afford it. A homeowner may have taken out a second mortgage or even a home equity line of credit. If you have multiple loans with your home as collateral, you can roll these into one mortgage. That new mortgage will cover the amount owed on all other loans, giving you one payment every month. The new loan may also provide you with a lower interest rate, making it even more beneficial.

However, this can be tricky. Depending on your home, its value, and even your income and credit, you may not get a new loan that has a lower payment than all the other loans combined. Both the short-term and long-term goals need to be weighed before deciding.

Fixed-rate loans, as well as adjustable-rate mortgages (ARMs), each have their own benefits. If you plan on staying in your home for the foreseeable future, a fixed-rate mortgage may be better suited to your situation. ARMs are typically better for those intending to sell the home soon.

Perhaps you were not planning on staying in the home long, but you’ve changed your thoughts on it and want to have a less risky fixed-rate mortgage that can also save you money over time. Perhaps you’ve been offered an ARM at a lower interest rate than your fixed-rate one, and since you are planning to move soon anyway, you want to take advantage of that lower rate, selling before the interest goes up.

Most mortgages that were taken out with a small down payment will have mortgage insurance. Mortgage insurance helps protect the lender in the event you fall behind on payments. Loans taken out with little down are considered riskier and the insurance helps your lender. However, if you can refinance to eliminate the mortgage insurance, you may be able to save thousands of dollars every year. The terms of your new loan may not be better than your current one, however. If the interest rate is higher, you may not save any money by doing away with the mortgage insurance.

If you are seeing more pros than cons in this list of mortgage refinancing options, you will want to talk to a lender. A lender can help you map out all the pros and cons of each refinance loan they offer so you can make the best choice for you as a homeowner.

It’s important to talk to a lender with experience in refinancing mortgages and Galaxy Lending is one of them. Give us a call today to speak with a specialist about your needs.