Refinancing your mortgage is when you trade in your old loan for a new loan with a new term and interest rate. You don’t have to refinance through the lender or bank you originally got the loan with, you can explore your options with different lenders to find the best loan for you.
Whichever lender you do choose is essentially paying off your old mortgage with a new one.
Most borrowers refinance when interest rates are low or when they need to cash in on the equity accrued in the home.
There are two types of refinances: rate and term or cash-out. A rate and term refinance consists of lowering your interest rate and reducing your term (if desired). For example, if the original mortgage was for a 30 year fixed loan of $400,000 at 5.75% that can be refinanced down to a 15 year fixed loan of $400,000 at 3.50%.
The loan would be paid off faster and with less interest. Rate and term refinances are popular for many different reasons: securing a lower interest rate, to move from an adjustable rate mortgage to a fixed rate (or the other way around), going from a FHA loan to a conventional loan, to remove Private Mortgage Insurance charges, consolidating multiple loans into one, and to reduce the loan term.
A cash-out refinance means you are exchanging your existing loan for a larger mortgage so you can get the difference in cash. For example, if a borrower’s original mortgage is for a 30 year fixed $400,000 loan at 5.25% and they chose to do a cash-out refinance, the new mortgage could be a 30 year fixed $450,000 loan at 4.25%, in which case the borrower will now get $50,000 cash on hand at the time the loan closes.
Refinancing isn’t always worth the trouble for every borrower and could cost you money if not thought out properly.
If you want a free evaluation to see if you are eligible for refinancing, please call Bluefire Mortgage Group at (760) 930-0569.