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Refinance - The Home We Love

Refinancing your mortgage is a big decision. Thoroughly weigh the pros and cons.

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The process of refinancing is where homeowners get a new loan to replace the original. This new loan, however, comes with its own unique set of benefits and disadvantages. Because of the significant time, money and effort that goes into a refinance, it’s important that homeowners truly determine whether their specific situation would benefit.

Pros to Consider

  • Lower interest rate - One of the best reasons to refinance is to possibly secure a lower interest rate. Even fractions of a percentage point could mean big savings in the long run, and according to recent data 2.4 million borrowers currently may qualify to reduce their interest rates by 0.75% simply by refinancing their existing mortgages.
  • Lower monthly mortgage payment - With a lower interest rate may come a lower monthly mortgage payment. Save the difference for a rainy day, or build some equity with a home improvement project.
  • New shorter loan term - If the monthly payment isn’t an issue, consider shortening the loan term. A lower interest rate may make it possible to shorten your loan term without much change to your monthly payment, so you could be debt free sooner.
  • Alternating between fixed-rate and adjustable-rate mortgages - Fixed-rate and adjustable-rate mortgages (ARMs) are loan jargon terms used to describe the interest rate’s permanence throughout the life of the loan. For example, if you originally chose an ARM loan, with a lower initial rate, thinking you would move after a few years, but have decided to stay, you may consider refinancing to a fixed-rate mortgage to avoid potentially higher payments down the road with the ARM’s periodic rate adjustments, which could increase during the life of the loan.

Potential Cons

  • Closing costs - Similar to the initial loan process, you will again be responsible for various closing costs. These could include escrow and title fees, lending fees, appraisal fees, credit fees and insurance fees.
  • Time - Refinancing a home takes much of the same organization, patience and determination that came with obtaining the initial mortgage. Budget time to research lenders, compare loans and gather appropriate documents. Specific timelines will vary but keep in mind that any errors could delay the process even further.
  • Strict requirements - Before refinancing, you’ll have to get pre-approved all over again. Many lenders have additional requirements when it comes to refinancing, which could limit some homeowners. There are a few options for those with lower scores, however.

Considering refinancing? A mortgage expert, such as a loan originator in your local Motto Mortgage office, can help.