What is Refinancing and Why Should I Refinance?

What Is Refinancing?

Refinancing is the process of obtaining a new mortgage in an effort to reduce monthly payments, lower your interest rate, take cash out of your home for large purchases, or change loan programs. Most people refinance when they have equity on their home, which is the difference between the amount owed to the mortgage company vs the worth of the home.

Why Should You Refinance?

1 | Decrease Monthly Payment

Borrowers usually refinance to lower their monthly payment by locking in an interest rate lower than their current rate and or removing PMI.

2 | Remove PMI

Borrowers who put down less than 20% when they buy a home will usually have to pay Private Mortgage Insurance (PMI). But if your home jumps in value, you can refinance to remove PMI from your monthly payment.

Even if you don’t quite meet the 20% equity requirement, you can still reduce the cost of PMI by refinancing. For example, lenders will often charge a lower PMI fee if you have 15% equity compared to 5% equity.

3 | Shorten Loan Term

Borrowers who choose a shorter-term loan will get a lower interest rate than those who choose a longer-term loan. If you can afford to refinance to a 15-year or 20-year loan instead of a 30-year loan, you may see a huge difference in the interest rate and the total interest paid.

4 | Take Cash Out

A cash-out refinance is when you can tap the equity in your home by refinancing.

The money from a cash-out refinance can be used to consolidate debt, fund a child’s college education, remodel your home, take cash out for other investments, purchase a 2nd home, the options are endless. Borrowers interested in a cash-out refinance can contact Banner Mortgage for more information on your refinance options.

Borrowers should also consider how long they plan to stay in the home before refinancing. Refinancing includes closing costs, so it may take a few years to break even on the deal or you may select a no closing cost option which includes a higher interest rate and lower or no closing costs.  Contact Banner Mortgage for more information on if a refinance is your best financial decision. loan process to purchase a home has many steps. The walkthrough below provides an overview of that process. We are more than happy to answer any questions you may have along the way.