Why would I refinance?
First off, what is a refinance? A refinance (refi) is where you take out a new loan, with new terms, and use that money to pay off your old loan. You are “re-financing” your home.
You would refinance for the following two reasons:
- To save money. This is a rate and term refinance, and the purpose is to save on the total amount of interest you are paying for your loan. The most common type of rate and term refinance is where you simply drop your interest rate and stick with your current repayment term. This would reduce your monthly payment. Or, you could also consider decreasing the term of your loan (for instance, taking it from a 27 year loan to a 15 year loan). While this would usually lower the rate and lower the interest you pay, it would in most cases increase your monthly payment because you are paying down your balance more quickly. When considering refinancing, it’s important to think about both the interest rate and the number of years to repay the loan.
- To cash out funds for other uses. You might want to cash out a higher amount than your current loan for several reasons. You could consolidate debt, finance home improvements, or cash out for other investments.
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