Refinancing Your Mortgage
What does it mean to refinance my mortgage?
Refinancing allows homeowners to hold onto their properties and adjust the conditions of repayment to suit their financial ability. In a refinance, a homeowner is simply swapping their current home loan for another, more favorable mortgage. What makes a new mortgage payment more "favorable" can be determined in several different ways: length of term, taking cash out and/or a change in interest rate.
How can refinancing impact the term of the loan?
- Some choose a refinance to shorten the term of their existing home loan, allowing them to repay the amount over a shorter time span This is ideal for homeowners who find they can handle a higher monthly payment than originally agreed upon at the time of sale. Also, the total sum of interest paid on the loan will be lower when the loan is repaid in full.
- Instead of refinancing, some homeowners might be tempted to make prepayments on their first mortgage to chip away at their debt. This can be detrimental if the terms of that loan penalize them for paying ahead. You should always consult with your current lender as well as your financial services provider and your tax advisor before prepaying your mortgage loan.
- Others refinance to extend the term of their mortgage, creating a lower monthly payment. This can be helpful to homeowners who aren't able to pay the amount of their fixed or adjustable-rate mortgage due to a change in income or additional expenses. Refinancing can present an alternative to selling assets, downsizing or making other financial concessions to meet your mortgage payment. However, this usually causes the sum of interest to increase by the time the loan has been repaid in full.
How can refinancing help me use the equity in my home?
Refinancing can also provide an opportunity for homeowners to access the equity they've already built in their home. Some homeowners will use a "cash out" refinance. In a cash out refinance, a homeowner can change the rate/term/type of loan as well as take out additional cash equity in the house. This can allow for debt consolidation, home improvements, college tuition, etc.
What information do I need to be approved for a mortgage refinance?
A refinance is a standard mortgage application homeowners need to contact a lender to begin the home refinance process. The same approval criteria are used: proof of income, credit scoring and other information.
At Bethpage, our mortgage experts have guided members through the process of refinancing. Whether you're unhappy with your current mortgage payment or would like to access the equity in your home, contact us today to learn more about making the right decision.
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