7 Aspects Of Home Mortgage Refinance

Do you find that your home could have been a smarter investment? Are you looking to enhance your financial well-being and position for retirement? If so, then mortgage refinance may be the answer. When it comes to safeguarding your financial future, few things are as important than making sure your mortgage is the tip of the iceberg and not the entire ice cube.

We’ve put together this information on 7 different aspects of home mortgage refinance so that we can talk about whether it would be worth exploring this option for yourself. We’ve also included a helpful infographic with 8 tips that will really put the icing on the cake, at least as far as home refinance is concerned.

Mortgage Refinance Overview

The purpose of a refinance is to take the place of or improve upon an existing home mortgage in one of two ways: either by taking out a new loan and replacing (or consolidating) your existing debt, or by repaying some or all of the existing loan through a new line of credit. The benefits of a refinance include potentially lower interest rates and payments, tax advantages, and the opportunity to combine several mortgages into one. Obviously there are many more benefits that are discussed in detail on this page and others to come.

A mortgage refinance is not a loan in the traditional sense, but rather is a re-arrangement of your current loan terms. You will still be on the same mortgage for at least 12 months after the new loan has been drawn against it and the new monthly payment has been taken into account. During this time period, your home will continue to be owned by your homeowner’s association (HOA), insurance company or other third party.

Mortgage Refinance Pros and Cons

There are many benefits to home refinance and this is a fairly subjective subject as there are as many different ways in which to view it as there are reasons for doing so. With that said, here is a quick look at some of the pros and cons by category.

Benefits:

It can be especially effective if you need to get out of debt, but having an adjustable-rate mortgage (ARM) or current loan on a fixed rate can make things a bit tricky.

It can be used to consolidate debt, which can help you take control of your finances.

It has tax benefits, including accelerating some of the principal paid off, which may help you if you are nearing retirement age.

It is a great way to increase cash-flow in retirement.

You may be able to get your VA or FHA loan reinstated if you default on your loan.

It increases your value, security and position when it comes time to sell.

For those who have controlled their spending, we see this as a way to better leverage home equity and their property portfolio ahead of the game. Moving forward and knowing that all their assets are tied up in real estate gives them greater options moving forward.

The biggest disadvantages to this type of loan are the total cost of ownership of the house, and only using a portion of the home’s value as collateral.

Benefits:

Many types of refinancing are available and can provide a lucrative return on investment.

Can improve cash flow for first-time homebuyers.

Re-finance can reduce interest rate and monthly payments, or increase the mortgage amount.

Can be used as a tool for better financial management.

Can allow debt consolidation, which can help you take control of your finances.

Lower interest rates can help you qualify for a larger loan. Can lower your monthly payments, after refinancing and paying off previous loans.

Can allow parents to leave assets to children in trust with more borrower options and more lenient terms, such as interest-only payments and payment deferrals due to financial hardship.

The biggest disadvantage to refinancing is that it might not be right for everyone, especially if that person has an interest rate on their loan at or close to zero percent.

There are many reasons to refinance your mortgage, including:

Favorable interest rates

Lowering monthly payments

Cash out refinancing

Securing a lower rate for a primary or second home

With a lower interest rate, you may be able to save money on your monthly mortgage payment. Your loan term may also be extended, allowing you to reduce how much you pay per month (or increase how much you borrow). Finally, if you refinance into a fixed-rate loan (as opposed to an adjustable-rate loan), it can help create a more stable housing budget—less prone to unexpected increases in mortgage payments.

There are also ways to reduce your interest-only payment. First, you can refinance into a 30-year fixed-rate mortgage. Second, you can pay off your principal early, eliminating the interest-only portion of your payment. Third, you can choose to make only the minimum required payment due each month, without the interest portion of the payment. These options often have additional fees and have been known to result in less financial flexibility for those who choose them.

Additionally, if you have a balance on your mortgage that is $100,000 or more (and have a FICO score of 740 or higher), refinancing may allow you to take cash out of your home, which can be used for many different things.

When choosing to refinance your home loan, it’s important to ask some questions and consider the following factors:

What is the interest rate of your current loan? If it is significantly lower than current rates, there may not be any additional benefit. However, if it is considerably higher—especially if you are within a few years of retirement age—refinancing into a lower rate could save you money over time.

What is the current amount of your monthly payment? Will refinancing into a lower rate reduce your monthly payment? If you refinance into a fixed-rate loan, what does that mean for your payment? It depends on the term of the loan. If you refinance at 7 percent, do you know exactly how much more you will pay each month? What if the rate increases?

If you refinance into a 30-year loan and are planning to pay it off early, what will happen to your monthly payments—and how much will they be reduced? The answer to this question also depends on the type of loan that you choose.

Conclusion

A refinance can be a smart way to take advantage of interest-rate cuts and get out of debt or consolidate your home loans. To ensure you are getting the best deal, do your homework and shop around for the lowest rate and lowest fees.

Refinancing is a process where your mortgage lender replaces an existing mortgage with a new one, usually at a lower interest rate. There are two types of refinance: “cash out” refinances and “non-cash out” refinances. A cash-out refinance allows you to take cash from the equity in your home (the difference between what it's worth today and what you owe).