Refinancing Mortgages

If you already have a mortgage, but would like to get a lower interest rate, cash in some of the equity you’ve built by making payments on your loan, or want to extend the loan term to lower your monthly payments, you can refinance your mortgage. A refinance is obtaining a loan that is secured against the same assets as another loan, used to pay off the original loan.

Refinancing Benefits

One of the major benefits of refinancing your mortgage is the potential to lower the amount you pay each month, while obtaining additional cash in order to pay off other debts (credit cards, car loans, etc) or make improvements on your home. If you’ve been paying on your home for a year or longer, then you have probably built up equity. Equity can be taken in the form of cash when you refinance your mortgage, and used for a variety of things. If interest rates have dropped since you first obtained your mortgage, you may qualify for a lower interest rate that will lower your monthly payment. Alternatively, you may be able to extend the term of your mortgage, giving you longer to pay your loan and thus lowering the monthly payments.

When To Refinance

Most mortgage lenders will not allow you to refinance your mortgage until you have paid for at least a year. You have to have sufficient equity built up in order to refinance. If you have equity, if the interest rates have decreased, if you need additional cash for repairs or to consolidate other debts, or you just want to lower your monthly mortgage payment- it is probably a good time to refinance your mortgage. If you obtained an adjustable rate mortgage during a time when interest rates were quite low, you most likely enjoyed low monthly payments. If the rates have increased since then, you may be struggling to keep up with your payments. Refinancing an adjustable rate mortgage to a fixed rate mortgage might be a good option for you, as you won’t be as affected by the interest rate fluctuations and can lock in an interest rate before it increases further. Another great time to refinance your mortgage is when you want to remove the PMI (private mortgage insurance). People who purchase homes without putting 20% down on the total cost of the property are charged private mortgage insurance. Once you’ve reached 20% equity, you can refinance and remove the PMI that you are paying to lower your monthly payments and avoid paying unnecessary fees.

Secret Cash

Having a mortgage is a little like having secret cash stashed away. Understanding the benefits of refinancing, and when the conditions are most favorable to refinance can result in having access to cash whenever you need it, or in lowering your monthly payments to free up your own cash on a monthly basis. Refinancing is a financial tool that is extremely powerful to those who learn how to use it effectively.