Refinancing 101

Rates have hit an all-time low and have left homeowners scrambling to refinance their mortgages. You have most likely heard in casual conversations with friends or family that “now is the time to refinance!” But you may be left wondering…what exactly is refinancing? Is it the right decision for me?

What Is It?

Refinancing is replacing your existing mortgage with a new one. This does not mean you will have two mortgages – the new mortgage will pay off the balance of the previous, leaving you to reap the benefits of your new loan.

What Can It Do For Me?

There are an array of benefits to refinancing and many reasons homeowners decide it is the right choice for them. Some of the advantages, besides possibly having a lower monthly payment, that you may be able to obtain by refinancing are:

  • A lower interest rate – This could be an opportunity to decrease the amount of interest you pay over the life of the loan, as well as possibly lowering your monthly payment.
  • Shorten the term of the loan – If you have a 30-year mortgage, by refinancing down to a 10, 15, or 20-year loan, this option would allow you to pay off your home even faster. Shorter-term loans often have lower interest rates, but be aware you could have a higher monthly payment.
  • Predictable payments – If you started with an Adjustable-Rate Mortgage, and you are now experiencing fluctuating payments each month, you could refinance to a Fixed-Rate Mortgage. This will ensure your rate will not increase.
  • Get a cash-out refinance – Yes cash! If you choose this route – when your new lender pays off your old mortgage, you could receive some of the difference in cash. You could use this money to finance home repairs, start a business, or even pay off those pesky student loans.
  • Cancel your mortgage insurance – If you put down less than 20% on your home, chances are you are paying mortgage insurance. Refinancing could allow you to eliminate mortgage insurance after you have reached 20% equity.

How Much Will It Cost?

Keep in mind that no matter which type of mortgage refinance you choose it will not be free, but in the long run, could save you money. The overall cost to refinance will depend on certain factors such as the size of your loan, your credit score, your available home equity, and your mortgage term and type. There also may be application, origination, appraisal, and credit report fees.

How Long Will It Take To Break Even?

When refinancing you may see a lower monthly payment right away, but you may not see the full benefits until it covers the costs of the refinance. We call this the “break-even point”. This will all depend on a multitude of different factors such as your current interest rate, the new potential rate, closing costs, and how long you plan to stay in your home. By using our Refinance Calculator, you can sort through the information easily and determine if refinancing your mortgage is a sound financial decision

Is It The Right Decision For Me?

This will all depend on your current loan and financial status. By speaking with a GMM Loan Officer, they can address your personal situation, and answer any questions you may have about refinancing!

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