When and Why to Refinance Your Mortgage

When and Why to Refinance Your Mortgage

Have you considered refinancing your home but aren’t sure the time is right? There are several reasons a homeowner may choose to refinance, but it’s essential to weigh all available options before making such a significant commitment. 

On average, borrowers who chose to refinance their 30-year fixed-rate mortgage in 2021 saved roughly $2,700 on their mortgage payments annually. These savings alone can provide homeowners with some financial breathing room, but the benefits of a refinance don’t stop there. Let’s take a look at some of the ways borrowers stand to benefit from refinancing their homes and how to know when a home refinance is right for you.

What Does it Mean to Refinance Your Mortgage?

When a homeowner refinances their mortgage, they are essentially trading out their original loan agreement for a new mortgage agreement with new terms. A home mortgage refinancing loan may allow you to lower your monthly payments, reduce your interest rate, shorten your repayment period, or free up some extra cash.

Taking out a home refinance loan is not the same as taking out a second mortgage, as it will replace your existing mortgage rather than stack on top of it. Depending upon your situation, refinancing can help you save money in the long term or provide you with much-needed immediate financial flexibility.

Hand Holding House Keys

What Are the Benefits of Refinancing?

Under the right circumstances, a borrower may benefit from a home refinance loan in many ways. Refinancing your home may allow you to pay off your home sooner by reducing the duration of your loan term (from 30 to 15 years, for example). This may be an excellent option for homeowners who are seeking to pay off their homes faster without having to worry about early repayment penalty fees.

On the other hand, if a homeowner is facing financial difficulty, it may be beneficial for them to refinance for a longer repayment term, thus reducing their current monthly payments. While this option is not necessarily appropriate for borrowers hoping to save money over the duration of their loan term, it may provide some immediate financial relief for individuals facing financial challenges.

Another option available to homeowners is what is known as a cash-out refinance loan. This loan allows borrowers to leverage the equity they’ve built up in their homes to receive a lump sum of cash. In this situation, a homeowner essentially takes out a larger loan than their existing mortgage loan and can access some of the difference between the two amounts in cash. A cash-out refinance is an excellent option for buyers requiring immediate cash infusion. The funds from a cash-out refinance can be used at the borrower’s discretion to help them consolidate their debts, fund home improvements, and more.

Take the First Step with Loan X Mortgage

Whether you’re a first-time home buyer or a seasoned veteran of the real estate industry, Loan X Mortgage offers competitive pricing and modern solutions to support clients of all backgrounds. If you’re looking to purchase a home and wish to estimate monthly payments, Loan X Mortgage offers an easy-to-use online mortgage calculator that accounts for a myriad of financial factors, including HOA fees, insurance costs, and property taxes. 

Loan X Mortgage knows that buying a home can be overwhelming. That’s why we pride ourselves on providing clients with unparalleled support and unwavering transparency throughout each step of the mortgage lending process. With over 150 team members working in 5 different states, Loan X has the industry know-how necessary to help clients breathe a little easier while navigating major financial decisions. 

Whether you’re looking to purchase a new home, refinance your current home or take out a home equity loan, Loan X Mortgage can help you find a loan that’s right for you. Reach out today to let us know what you’re looking for in a mortgage lender, and visit the site to crunch your numbers with our mortgage calculator.

When to Refinance

When it comes to refinancing your home, timing is everything. It’s important to consider your specific financial situation in relation to the overall state of financial markets before deciding whether a home refinance would be right for you. Borrowers may want to consider taking out a home mortgage refinancing loan when:

  • Interest rates drop: If current interest rates are at least 1% lower than your current rate, you may want to consider refinancing. If current interest rates are substantially lower than your current rate, it may also be worthwhile to reduce the duration of your repayment term to save you additional money over time. 
  • Your financial situation changes: If your current financial situation has changed significantly, refinancing your home may be a means of addressing some financial needs. For example, if you’re experiencing financial hardship, you may want to consider increasing the duration of your repayment period to reduce your ongoing monthly payments. Conversely, suppose your financial situation has changed for the better since closing on your original mortgage. In that case, it may be worthwhile to reduce your repayment term to help you pay off your loan faster and save you money on interest in the long term. 
  • You’re looking to update your home: If you’re interested in increasing the value of your home by making needed home improvements, a cash-out refinance may provide you with the capital you need to get the project done. In this situation, homeowners will want to speak with a mortgage professional to determine whether a cash-out refinance or a home equity loan would best suit their needs. 
  • You want to consolidate your debt: Homeowners with other outstanding debts like credit cards, student loans or medical bills may want to consider using the funds from a cash-out home refinance to pay down and consolidate these debts without the burden of hefty interest rates.

Take the First Step with Loan X Mortgage

If you’re considering refinancing your home, the team at Loan X Mortgage can help you navigate the process and find the loan option that’s right for you. As one of Michigan’s top mortgage brokerages, Loan X Mortgage has the industry experience needed to help our clients achieve their unique financial goals. Our team receives hourly updates on current mortgage guidelines and utilizes an in-house software platform to streamline the lending process from end to end.

If you’re unsure whether a home refinance may be in your best interest, our online mortgage calculator can help you visualize and understand your options before taking the next step in the refinance process. If you’re still unsure, reach out today to speak to a loan specialist about your lending needs, and we’ll be happy to help you jumpstart your refinance journey.