Deciding to Refinance

When you refinance your mortgage, you're actually replacing it with a brand new loan. In doing this, expect to go through a mortgage application process similar to what you experienced with your original mortgage. Refinancing is often a sound financial choice that can allow you to meet a variety of needs:

• Reduce your monthly payments by taking advantage of lower interest rates or extending the repayment period.
• Reduce your interest rate risk by switching from an adjustable-rate to a fixed-rate loan or from a balloon mortgage to a fixed-rate loan.
• Reduce your interest cost over the life of your mortgage by taking advantage of lower rates or shortening the term of your loan.
• Pay off your mortgage faster (accelerating the build-up of equity) by shortening the term of your loan.
• Free up cash for major expenses or to consolidate debts.

Rate-Term Refinance vs. Cash-Out Refinance

A rate-term refinance has a loan amount that is just enough to repay the balance of the existing mortgage. The purpose of the loan could be either to reduce your interest rate, adjust your loan term, or both. A cash-out refinance, on the other hand, has a loan amount that exceeds the current mortgage balance. The higher loan amount converts some of you home equity into cash proceeds, which you receive at loan closing.

A Good Rule of Thumb

A good rule of thumb is that if interest rates are 1/2% to 5/8% lower than your current interest rate, it may be a good time to consider a refinance. To keep track of interest rate trends, sign up to receive Home Mortgage Corporation alerts.  You'll receive periodic rate updates by email, and can choose to be notified when rates drop below a certain level.

The Right Time to Refinance

Many homeowners consider refinancing when interest rates suddenly fall or there's a change in financial circumstances. But even though a large decline in rates or an opportunity to pay off debts might make refinancing seem like an easy decision, you shouldn't consider any single variable on its own. Think about how long you plan to stay in your home, how you plan to use your equity, and how a refinance will support your overall financial goals.