Refinancing is when you get a brand-new loan to pay off and replace your existing loan. Therefore, the terms of the old loan are replaced by the new agreement. We’ve compiled some frequently asked questions to help you better understand the ups and downs of refinancing your mortgage loan.
Is it a simple process to refinance my home?
Pro: Applying for a refinance loan is not as in-depth and time-consuming as applying for a purchase loan.
Con: Lots of documentation is still required including, verifying employment, income and identity. Also, loan approval is not guaranteed.
Will refinancing save me money?
Pro: Refinancing could possibly reduce the interest costs over the life of your loan, thereby saving you money.
Con: If you’ve already made loan payments for a number of years then you may not save money in the long term.
Should I refinance to get a fixed-rate mortgage loan?
Pro: A fixed-rate loan is more predictable so it’s easier to budget since you’ll have the same payment every month.
Con: You’re locked into a rate so you can’t take advantage of future lower interest rates unless you refinance again.
Are there benefits to reduce the length of time allotted to pay off my loan?
Pro: Your savings on interest costs could be substantial.
Con: Your monthly mortgage payment will probably be higher.
Would refinancing eliminate my mortgage insurance?
Pro: Refinancing your FHA loan into a conventional loan could eliminate the FHA mortgage insurance premiums.
Con: You must wait to accumulate 20% equity in your home before you can refinance into a conventional loan without mortgage insurance.
Can I refinance to do home improvements?
Pro: You can use the equity in your home to do a ‘cash-out’ refinance or you could refinance using a specialized renovation loan program.
Con: Fees are usually associated with refinancing and your monthly payment could increase.