When you refinance your mortgage, you replace your current loan with a new one. This new loan can have different terms, such as a lower interest rate, a shorter duration, or an adjustable rate at a fixed rate. Refinancing can help you lower your monthly payments, save money in interest over the life of your loan, pay off your mortgage sooner, and access your home equity if you need cash for any purpose. To refinance your mortgage, you must apply for a new loan just like when you bought your home.
Your lender will use this new loan to repay the old one, so you'll only have to make one payment each month. Every time you refinance, you start over with a new mortgage that has different terms. When considering refinancing, it's important to consider the closing costs associated with the process. With a cash out refinance, you'll get a new home loan for more than you currently owe on your home.
If you're refinancing to withdraw cash, the value of your home determines how much money you can get. For example, conventional mortgages usually require a maximum LTV ratio of 80% for refinancing with cash withdrawal. It's also important to consider whether refinancing is worth it for you. To determine this, calculate the break-even point after considering refinancing expenses and make sure that you stay in your home for at least 22 months to save and avoid losing money.
If your credit score has dropped since you took out your original mortgage and you would go from a conventional loan to an FHA loan with expensive mortgage insurance, refinancing may not be worth it. When looking for the best refinance rate and fees available to you, compare lenders and take your time. VA homeowners must demonstrate that the refinance mortgage will result in savings in monthly payments, except for homeowners who switch to a shorter loan term or from an adjustable rate mortgage to a fixed-rate loan.