Refinancing is often used to lower your interest rate. If rates have dropped since you last financed your home, you may want to consider refinancing.
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Other common reasons to refinance include paying off a balloon payment, converting an adjustable rate loan to a fixed rate loan or to extract cash equity in your home (cash out).
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A few reasons for cashing out include: Home improvement, an education fund, and consolidating debt.
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Another way to convert equity in your home to cash is a “home equity” loan. A “home equity” loan is an alternative to refinancing if your home loan has a very low rate compared to current interest rates or if you have a prepayment penalty on your loan.
If mortgage rates have dropped since you got your original loan, refinancing to a lower interest rate can lead to significant savings over the life of your loan. Even a small change in the rate can make a big difference.
Refinancing from a 30-year mortgage to a 15-year mortgage can help you own your house outright faster. This also builds your equity more quickly. You'll pay less overall interest with a shorter term, even though your monthly payments may be higher.
If you need cash, a cash-out refinance lets you access the equity you've built in your home. This money can be used for major renovations, to consolidate debt, or for other major expenses. Be aware that a cash-out refinance means you'll be taking on a larger mortgage.
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