Benefits of Refinance

A lower interest rate may result in lower monthly payments – even a small rate change can save a substantial amount of money each month. But lower payments are just the tip of the iceberg when considering the benefits of refinancing.

Take cash at closing. By refinancing more than the amount still owed on your home loan, you may be able to receive additional cash at closing. Example: If your home is worth $150,000 and you still owe $80,000 on your mortgage, you could refinance $100,000 and take out $20,000 in cash. You’ll have one monthly mortgage payment plus the flexibility to use that $20,000 to cover other expenses, such as home improvements or tuition.

Build up equity and pay off your debt faster. Refinancing with a mortgage over a shorter term than your current mortgage can significantly lower your total costs – and your monthly mortgage payment may not increase at all, depending on your initial rate. And by reducing the term of your loan, you may be able to build up equity faster.

Switch from an adjustable-rate to a fixed-rate mortgage. In these economic times, many homeowners with adjustable-rate mortgages (ARM) are understandably concerned about the market’s direction. Switching to a fixed-rate mortgage – and monthly payments that never go up – can deliver some peace of mind. And if the fixed interest rate is low, you could wind up saving even more money. If you plan to stay in your home for the long term and rates are favorable – like they are now – refinancing with a fixed-rate mortgage can save a significant amount of money over the life of your mortgage.

Select an ARM with a cap, for added security. If your current ARM doesn’t include a cap feature, consider switching to one that does. This option allows you to set a limit on potential increases to your interest rate and monthly payments – giving you the confidence of knowing there won’t be any unpleasant surprises later.

Consolidate debt. Paying all those credit card bills every month can be expensive and confusing. By including those debts in your refinancing plan, you can have just one monthly payment and save significantly on interest charges and late fees. Even if your credit is less than perfect, this option can deliver more of that well-deserved peace of mind – and you may benefit from tax savings, too. (Please consult your tax advisor.)

Private mortgage insurance. If you put down less than 20 percent when you purchased your home, you’re most likely paying a monthly fee for private mortgage insurance (PMI). But once you’ve accumulated more than 20 percent in equity, you may be able to eliminate the PMI payments. If you haven’t reached the 20 percent quite yet, it may make sense to round up your monthly mortgage payment (from $1,090 to $1,100, for instance), enabling you to get there quicker and eliminate the PMI sooner. (Please consult with your private mortgage lender.)