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Why Refinance Your Mortgage?

There are several reasons that homeowners choose to refinance their mortgage loans. It can lower the monthly payment, allow the loan to be paid off sooner, or change the program terms and potentially the risk of rate increases. Whether it makes sense to refinance depends on several factors such as the interest rate of the current mortgage loan, and the goal of refinancing.

Here is a look at when it might make sense to refinance in order to accomplish different aims:

• Lower monthly payment. If current mortgage rates are lower than the rate on your existing mortgage you may be able to lower your monthly payment by refinancing. Your mortgage banker can help you calculate how many months it will take to start seeing the benefits after any upfront costs are factored in. You may also be able to lower your monthly payment by extending the term of the loan and paying it back over a longer period of time, though you will pay more interest over the life of the loan with this option.
• Pay off the mortgage sooner. By refinancing into a shorter term loan of 20, 15, or 10 years from a 30 year mortgage you will pay off the loan in a much shorter time. Your monthly payment is likely to increase but you save on the amount of interest you pay over time.
• Change loan programs. When a payment adjustment is looming at the end of the fixed period for an adjustable rate mortgage or the interest only period of an interest only loan it often makes sense to refinance into a fixed rate loan or to restart the clock with another ARM.

You may also consider a cash out refinance should you need to tap into the equity in your home for another reason such as home improvements or education expenses.