Reasons to Refinance
Start with your goal. Most people refinance to take cash out, lower their payment or shorten their loan term.
Take Cash Out
A cash-out refinance replaces your mortgage with a larger loan, and you receive the difference in cash. You can use it to pay off higher-interest debt, improve your home, pay for education or anything else. You’ll need enough equity in your home, from paying down your loan or from a rise in its value.
How a cash-out refinance works
Before: your current loan
- Current loan balance
- Your equity
After: your new, larger loan
- Pays off current loan
- Cash to you
- Remaining equity
Because mortgage rates are often lower than rates on other debts, a cash-out refinance can be a way to consolidate debt. But refinancing doesn’t eliminate debt: it moves it into your new loan, and your total finance charges may be higher over the life of the loan. Cash-out proceeds are generally tax-free, and mortgage interest may be tax-deductible; consult a tax professional. Certain limitations apply. Call for details.
Get a Lower Payment
There are three common ways to lower your monthly payment:
- Get a lower rate. If rates have dropped since you got your loan, a lower rate reduces the interest in each payment.
- Remove mortgage insurance. If you put down less than 20%, you may be paying mortgage insurance. Refinancing once you have more equity may let you drop it.
- Lengthen your term. Spreading payments over more years makes each one smaller, though you’ll usually pay more interest overall.
Ask us which of these could fit your budget.
Shorten Your Mortgage Term
A shorter term often comes with a better interest rate, and with fewer years of payments, you pay less interest overall. Your monthly payment may go up, but more of each payment goes toward your loan balance, so you build equity and pay off your home sooner.
Where each monthly payment goes
- Principal
- Interest
Share of each payment
How long should I own my home before refinancing?
In most cases, you’ll need to be in your current home for at least a year before getting a significant financial benefit from refinancing.
Things You Need to Evaluate Before Refinancing
Once you have a clear goal, look at four key things: your credit score, your monthly mortgage payment, the value of your home and your debt-to-income ratio (DTI).
- Your credit score. It affects which refinance options you may be eligible for. Ask us for help checking it.
- Your monthly payment. Know how much room your budget has for a higher payment if you’re taking cash out or shortening your term, or how much lower a payment needs to be to make refinancing worthwhile.
- Your home’s value. Your lender can’t lend more than the home is worth, so a low appraisal can limit your options, especially for taking cash out or removing mortgage insurance. Your equity is your home’s value minus your loan balance. We can help you estimate it.