The Benefits of Refinancing Your Home Loan

Refinancing is an excellent way to use your home as financial tool. Learn how it works & how it can help save money on monthly payments & interest.

The Benefits of Refinancing Your Home Loan

Refinancing a mortgage is a great way to use your home as a financial tool. It involves canceling an existing loan and replacing it with a new one, which can offer a lower interest rate, shorter term, or access to cash. Refinancing can help you save money on your monthly payment and on the interest you pay over the term of the loan. It can also help you adjust the term of your loan, get a better interest rate, and change the type of loan.

When the time is right, refinancing is an excellent way to redeem the equity in your home and use the money as needed. To refinance your mortgage, you need to get a new home loan to replace the one you already have. If you can refinance at a lower interest rate than you currently pay, you could save money on your monthly payment and on the interest you pay over the term of the loan. You could also take advantage of a cashback refinance, which allows you to take advantage of the equity in your home, essentially like a lower-interest loan. Some borrowers may reduce the term of their loan by refinancing.

If you are a borrower who has held your loan for several years, a reduction in interest rates can allow you to move from a 30-year loan to a one-to-one loan for 20 years without a significant change in monthly mortgage payments. Because the loan is paid off in a shorter period of time, you can benefit from a reduction in interest expenses. The most immediate benefit of refinancing is that it helps cash-strapped borrowers find space within their monthly budget. This could be advantageous if you expect your cost of living to rise (maybe you are having a baby) or if your income has declined (due to loss of work or decreased working hours). Refinancing your mortgage at the right time could help you reduce the total amount of interest you pay over the life of the loan. For example, if you have 20 years left on your 30-year fixed-rate mortgage and refinance to convert it to a 30-year fixed-rate mortgage, you've basically extended the term of your loan.

The main difference between refinancing and modifying the loan is that refinancing gives you a new mortgage, while the modification changes your current terms. When you refinance your mortgage, you replace your current mortgage with a new loan. The new loan can have different terms, ranging from 30 to 15 years or an adjustable rate at a fixed rate, for example, but the most common change is a lower interest rate. Refinancing can allow you to lower your monthly payment, save money in interest over the life of your loan, pay off your mortgage sooner and take advantage of your home equity if you need cash for any purpose. Three years later, Jessica has a much better credit score and can refinance herself at an interest rate of 4 percent. If you got your mortgage some time ago and never refinanced it, you may still be able to refinance a new loan now with a lower interest rate and a shorter term.

You'll need to calculate the break-even point to determine if you'll stay in your home long enough to recover closing costs and benefit from the savings from refinancing. They will analyze your income, assets, debt and credit rating to determine if you are eligible to refinance and if you can repay the loan. Axos Bank offers a wide range of mortgage refinancing options to meet the needs of borrowers who want to refinance. With a cash refinance, you make a one-time payment to lower the loan-to-value ratio (LTV), which reduces your total debt burden, potentially reduces your monthly payment, and could also help you qualify for a lower interest rate. Refinancing can be a good financial measure if it reduces your mortgage payment, shortens the term of your loan, or helps you build capital more quickly. The good thing about refinancing is that you may not have to pay those costs out of pocket, especially since the adverse refinance fee was removed from the market. As a general rule, it's worth considering refinancing if you can lower your interest rate by at least half a percentage point and plan to stay in your home for at least a few years. Americans are applying to refinance loans at a 38% higher rate than last year, in part because the Federal Reserve lowered interest rates when the coronavirus pandemic hit and loans are now more affordable.

Other times, homeowners want to refinance to change the term of their current mortgage from 30 to 15 years. While a short refinance avoids the borrower the financial impacts of foreclosure, this option comes at the expense of affecting their credit rating. When you refinance your home mortgage, you're essentially swapping your current mortgage to a newer one, often with new equity and a different interest rate.

Rosanne Axtell
Rosanne Axtell

An animal lover. Infuriatingly humble pop culture aficionado. Incurable social media advocate. Unapologetic web expert.

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