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3 Things To Know Before You Start A Mortgage Refinance

Thomas Bepko
The Mortgage Reports contributor

Thinking About A Refinance?

When current interest rates are low and you want to reduce your mortgage payment, doing a home loan refinance your mortgage is a logical next step. Replacing an old mortgage with a new one can result in lower costs and better terms.

It’s also the only way to convert an adjustable-rate mortgage to a fixed-rate mortgage.

But, while refinancing can do a lot of good, there are some points of which to be aware. When you understand the refinance process better, you can be sure you’ll get the refinance benefits which you expect.

Click to get today's rates now (Dec 8th, 2019).

A Mortgage Refi Can Lengthen Your Payoff Time

Mortgage lenders offer a variety of loan terms on a refinance, including 10-year, 15-year, 20-year and 30-year terms.

The 30-year mortgage is, by far, the most common refinance loan term and choosing the maximum loan term when refinancing means you’ll have the lowest possible monthly payment.

The downside, though, is that a new 30-year mortgage resets your current loan back to thirty years. This isn’t such a concern if you’re near the start of your original loan term, with 25 years remaining or more.

However, if you’ve lived in your home for ten or more years, a new 30-year mortgage may not always make sense. Sure, you’ll save money monthly, but you’ll pay be adding an additional 10 years of interest onto your loan.

Depending on how long you’ve been living in your home, it may be better to refinance into a 20- or 15-year mortgage instead. You’ll still enjoy a low rate, and you’ll be able to pay off your loan according to your original mortgage time frame.

A Refinance Can Have High Closing Costs

The closing costs of a mortgage refinance, like the costs of on a home purchase, are not inconsequential. Even when your bank says it will pay your closing costs on your behalf, you’ll likely paying a higher mortgage interest rate to make up for it.

Closing costs cannot be avoided, but you can shop around to make sure you’re getting the best deal.

Remember that you don’t have to refinance with your original lender. Sometimes, your current lender will have the best package for you, with the best rate and the lowest fees. But, it doesn’t hurt to see what lenders offer.

Other banks may offer low rates, or fewer loan origination fees, or lower fees for title searches and attorneys.

Click to get today's rates now (Dec 8th, 2019).

Certain Refi Types Can Raise Your Payment

Refinancing your home mortgage is a great solution when you want to lower your mortgage payment using today’s low mortgage rates. However, some people use their home refinance to put extra cash in their pockets — and that can lead to higher monthly payments.

If your home has equity, via a refinance, you may have the ability to access that equity and receive cash-in-hand at your closing.

This type of refinance is known as a “cash-out refinance“.

Money from a cash-out refinance can be used for a variety of purposes, such as home improvement work and debt consolidation. If you’re not careful, though, and you withdraw too much equity, you can increase your mortgage payment beyond your monthly comfort zone.

This isn’t free money.

Cash-out refinances, like all mortgages, have to be repaid and cashing out home equity will increase how much you owe on your house.

For example, if your original mortgage balance was $200,000, and you receive a cash-out refinance for $40,000, your new mortgage balance grows to $240,000.

Some people borrow too much and struggle to keep up with their mortgage payments, which can lead to late mortgage payments, additional lender fees, and a damaged credit score. If you’re doing a cash-out refinance, then, only take what you need and can afford.

Click to get today's rates now (Dec 8th, 2019).

Get A Refinance Mortgage Rate Quote

Mortgage rates are favorable for refinance loans; and there are millions of U.S. homeowners currently eligible for lower rates and payments.

Get a mortgage rate quote now. Rates are available online at no cost, with no obligation to proceed, and with no social security number required to get started.

Click to get today's rates now (Dec 8th, 2019).