When Should You Refinance?

Summary

Many mortgage lenders offer borrowers the chance to refinance their properties.

Here is how to know when a refinance is right for you.

Refinance Basics

People refinance for two basic reasons. The first is to get a new mortgage that offers a lower payment. The second reason is to increase the loan size and cash out some of the equity in the property.

Borrowers can also do a combination of these two, if they have enough equity and the right new mortgage.

Lowering A Payment

There are many ways a borrower can reducer their monthly payment.

They can get a lower interest rate than what they currently have. This has been an option for several years.

Borrowers may qualify for a lower rate for several reasons.

First of all, interest rates in general may have declined since the last time they got their mortgage.

The property’s value may have increased over time. In this case the borrower can use the additional equity as leverage to get a lower interest rate. Lenders often lower their interest rate as a borrower’s equity increases. This is because their risk is lower on this type of property.

A borrower may also have stronger credit and higher income since the last time they got their mortgage.

A lower mortgage payment can also be had by changing the terms of the loan. The longer the loan term you have the lower your monthly payments will be.

A 15 year mortgage is usually the mortgage with the highest monthly payment. Many borrowers have 30 year mortgages. Newer mortgages include 40 year and 50 year mortgages.

These new loan options allow a borrower to substantially decrease their monthly payment even if their interest rate remains the same.

You can also lower your monthly payment by switching loan types. You can get an interest only mortgage. This type of loan allows you to pay at the interest only level. This keeps your monthly payment lower than a loan of the same size and interest rate but with a regular payment feature.