“Refinance” is a word often used in the mortgage industry. Homeowners may want to refinance their mortgage for many reasons, such as paying their children’s college tuition or saving for retirement. Although there are some definite benefits to refinancing, you shouldn’t make such a big decision without understanding exactly what refinancing a mortgage means and whether the pros outweigh the cons.
First, what does it mean to refinance your mortgage?
When you refinance your mortgage, you are getting a new mortgage loan to pay off your current one. But you don’t necessarily end up debt free after everything is said and done. Even though you are able to reimburse your first lender by taking out another mortgage, you still have to go through the process of paying back that loan, just like you did after receiving the previous one.
Maybe you think that refinancing isn’t worth it. Why go through the trouble of applying for a brand new mortgage loan only to end up in the same situation you are in now—making monthly payments to your lender until the loan is paid off? Well, there are actually several advantages in doing this.
What’s the benefit of refinancing?
One of the major benefits of refinancing a mortgage is that you can pay less interest, because the new rates may be significantly lower than they were when you first took out your mortgage. In fact, the Federal Housing Finance Agency's 2015 First Quarter Refinance Report exemplifies how interest rates are a critical factor for those thinking about refinancing. As discussed in the report, the number of people who refinanced their homes increased tremendously when the mortgage interest rates dropped and decreased when the rates rose.
Although it will take you longer to repay the mortgage loan, you’ll have extra money in your pocket each month that you wouldn’t have had if you were still making payments on your old mortgage loan. You can use the money you save to pay off any other old debt you have.
In New York, you have the opportunity to refinance your mortgage with a Consolidation, Extension, Modification Agreement, otherwise known as CEMA, which can save you even more money.
Can you only refinance a conventional mortgage loan?
No. You can refinance other mortgage loans as well, including:
- FHA Loans
- VA Loans
- Jumbo Loans
- Multi-Family Loans
- Commercial Loans
- Reverse Mortgages
Should everyone refinance?
Not necessarily. Although there are benefits to refinancing a mortgage, you should carefully consider your long-term financial goals. Certainly, you're right to want to take advantage of low interest rates, but make sure you also consult with mortgage lending professionals so you can determine if refinancing is the right choice for you.
