Anything that has to do with changing the mortgage you have on your home is something that’s worth doing your homework to make sure is something that isn’t going to hurt your investment or your wallet. Doing a home refinance is definitely no exception to this rule, especially considering it involves restructuring your mortgage. So what exactly is a home refinance and how can it help you or hurt you in both the short term and the long term?
Let’s Define Home Refinance.
A home refinance is when you refinance your mortgage. This involves, usually, getting a different mortgage company to take over your mortgage and allows you to change the terms of your loan. The most common ways to refinance include:
- Cash Out Refinance: This type of refinancing involves taking out a loan that is greater than your current mortgage as well as any other liens and fees so you can put the extra cash in your pocket.
- Loan Length Extension: You can refinance your loan for a longer time frame to repay. People usually do this when they want to have a lower monthly payment and the fact that their overall interest paid goes up. You can usually find good interest rates on this type of refinancing, but because the payment plan is stretched out you end up paying more interest than you would otherwise.
- Shortening the Loan Length: You can extend your loan, but you can also shorten it. Refinancing to a shorter loan length leads to higher monthly payments, but on the whole of your loan you end up paying less interest. This method is especially good for people that don’t want to pay as much interest on the total loan and can afford to make higher monthly payments.
- Of course, if you want to do a refinance that changes the length of your loan you’ll definitely want to put some thought into it. For instance, if you want to go from a 30-year mortgage to a 15 year you could potentially end up paying double every month. If you can afford to do that, great, but if not you may want to look into a 20 or 25-year mortgage.
When is a Good Time to do a Home Refinance?
Knowing when to refinance is one of the key skills you need when deciding if refinancing is good for you. If you can find low-interest rates for whatever loan length you want it’s usually a good time, but there are a few instances that it may be wise to not refinance. If you plan on moving soon it may not be a good time, but there are ways to make sure that you can still sell your home and move without it being an issue. It may also be wise not to refinance if you have a lot of equity in your home. Refinancing can significantly cut down the amount of equity you have, which can cause some issues if you’re going to be looking into a home equity line of credit anytime in the near future.
Refinancing to Make Your Mortgage a Better fit for Your Life
Refinancing can do you a lot of good so long as you do your homework and make sure that the terms are agreeable for you. You can save a significant amount of money yearly, and a significant amount of money overall. Just make sure to do all of your due diligence so you can be sure that your new mortgage is going to be everything that you need to be, and more importantly even better than the one you currently have.