What is a Refinance?
When you refinance your mortgage, you are basically swapping out your original loan for a different one. Ideally, your new mortgage should fit your current personal and financial goals better than your previous mortgage did. There are different types of refinances but the two main types are:
- Rate-and-Term Refinance: Your new loan typically has a more favorable interest rate and/or loan term (for example, switching from a 30-year fixed loan to a 15-year fixed loan)
- Cash-out Refinance: You liquidate some of your home's equity and get a new loan that consists of your previous mortgage balance plus the case you took out
While some refinances can result in lower monthly payments, it's important to note that you may pay more finance charges for your loan in the long run.
Benefits of Refinancing
If you’re unsure whether you should refinance, consider these benefits:
- Lower your interest rate
Refinancing to receive a lower rate may save you thousands over the life of your loan. Contact your lender to compare your current mortgage rate to the rates they’re currently offering.
- Shorten your term
Transitioning your 30-year loan into a 15-year loan may result in a more favorable interest rate. It will also help you pay less in interest over the life of your loan.
- Switch from an adjustable to a fixed rate mortgage
Switching your mortgage from an adjustable rate mortgage to a fixed-rate mortgage can help you lock in a low mortgage rate before potential future rate hikes.
- Turn your home’s equity into cash
Many homeowners choose to access the equity in their homes to receive cash for home improvements, to pay for college tuition, to buy a new car, or any other high cost purchases.
Contact a Service First Loan Officer near you to discuss whether refinancing might be right for you.