With interest rates still near historic lows, refinancing a home to save money and for other reasons is becoming more and more common. But what exactly is refinancing your mortgage and how do you know if it’s right for you? Read on to learn the ins and outs of refinancing a mortgage loan so you can have the information you need to make the right financial decisions for you.
What is Refinancing?
Although it is indeed a complex financial transaction, essentially a mortgage refinance is replacing your current mortgage loan with another one. When you do this, your current loan is completely paid off, and you receive a new mortgage with new terms and interest rates.
Why Might I Want to Refinance My Home?
A homeowner may want to refinance if his or her financial situation has changed, if interest rates have dropped or many other reasons. Some refinances allow homeowners to get cash out from their home equity, allowing them to pay down other debt or make improvements to their homes. On the other side, some homeowners opt for cash-in refinances, where they pay down a larger portion of their home in the refinance to increase the amount of equity in their home. This is often done to get rid of costly PMI payments.
Could Refinancing Be Right for Me?
Refinancing your home is a financial decision you must make for yourself with the help of your financial advisor and lender. However, there are a few criteria that might make a refinance of your mortgage loan an attractive option. Some signs you might want to consider a home mortgage refinance include:
- Interest rates have dropped since you received your initial mortgage and you may qualify for a lower mortgage rate
- You need a lower monthly payment and don’t mind paying over a longer period
- Your initial mortgage was an adjustable rate mortgage, where terms can change after a certain period
- You want a shorter loan term to pay off your home more quickly and don’t mind an increased monthly payment
Before you make any decisions about refinancing a home, you should speak to a trusted financial advisor.
The North Carolina Housing Finance Agency offers resources for home buyers across North Carolina. For more information about the home buying process, affordable mortgage options and more, visit www.HousingBuildsNC.com.