When you bought your home, your mortgage was based on your financial situation, your goals, and the market at that time. But those things can change.
Maybe interest rates have changed. Maybe your home has gained value. Maybe your monthly budget looks different than it did when you purchased. Or maybe you’ve been hearing people talk about refinancing and you’re wondering whether it could actually benefit you.
Refinancing can be a useful financial tool, but it isn’t automatically the right move simply because rates have changed. The important question is: What would refinancing accomplish for you?
What Does It Mean to Refinance Your Mortgage?
Refinancing means replacing your existing mortgage with a new home loan. The new mortgage pays off your current loan and may have a different interest rate, loan term, monthly payment, loan type, or balance.
There are several reasons homeowners may consider refinancing, and the right strategy depends on what you’re trying to accomplish.
Lowering Your Monthly Payment
One of the most common reasons homeowners explore refinancing is to potentially reduce their monthly mortgage payment.
A lower interest rate may help accomplish that, but the interest rate isn’t the only piece of the equation. Your remaining loan balance, new loan term, closing costs, taxes, insurance, and mortgage insurance can all affect the numbers.
That’s why we believe the conversation should be about more than, “What rate can I get?”
It should be, “Does refinancing improve my overall financial situation?”
Changing Your Loan Term
Refinancing can also give homeowners an opportunity to change how long they’ll be paying their mortgage.
For example, someone with a 30 year mortgage may consider refinancing into a shorter term to pay the home off faster and potentially reduce the amount of interest paid over time. Another homeowner may prioritize monthly cash flow and choose a different loan structure.
There isn’t one strategy that makes sense for every homeowner.
Using the Equity You’ve Built
If your home has increased in value or you’ve paid down a significant portion of your mortgage, you may have equity available.
A cash out refinance allows qualifying homeowners to replace their existing mortgage with a larger loan and receive a portion of their available equity as cash. Homeowners may consider those funds for renovations, debt consolidation, major expenses, or other financial goals.
Your home equity is an important financial asset, so accessing it should be part of a larger conversation about what you’re trying to accomplish and how the new mortgage fits into your long term plans.
Don’t Forget About the Cost of Refinancing
A refinance is a new mortgage, which means there can be closing costs associated with the transaction.
Before refinancing, it’s important to compare those costs with the potential benefit of the new loan. If refinancing saves you money each month, for example, you can look at how long it may take for those monthly savings to offset the cost of refinancing.
Your plans for the property matter too. Someone planning to stay in a home for many years may look at the numbers differently than someone considering a move in the near future.
So, Is It Time to Refinance?
There isn’t a magic interest rate that automatically means everyone should refinance.
Two homeowners can have the same current mortgage rate and receive completely different answers because their loan balances, equity, credit profiles, goals, and timelines are different.
At KB Mortgage, we can review your current mortgage alongside today’s available options and help you understand the numbers before you make a decision.
Sometimes refinancing makes sense. Sometimes keeping the mortgage you already have is the better move. Either way, you should understand why.
Thinking about refinancing or wondering whether your current mortgage still makes sense for you? Reach out to KB Mortgage. We’ll walk through the numbers with you and help you understand your options.
Refinancing may result in finance charges that may be higher over the life of the loan. Consult with your loan advisor for details.