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Benefits of refinancing
- Paying off your mortgage early: For example, if you go from a 30 year loan to a 15 year loan without a big increase in your monthly payment, you could save thousands of dollars in interest while quickly increasing the equity in your home.
- Increase cash flow: Obtaining a lower interest rate on your mortgage may lower your monthly payment and allow you to have more cash to decrease your debt or expand your budget.
- Utilize home equity: With a cash-out refinance, you are able to borrow more money than you currently owe on your loan. You can then use that money to pay down debt, make home improvements, or to get out from under financial burden.
Consider these factors before refinancing
- Credit score: The higher a credit score, the better interest rate you will get.
- Closing costs: Although it may be an option to add the closing costs into the refinanced loan amount, it’s better to pay those costs in cash.
- Your mortgage in relation to your family’s financial situation: What is your household budget? Are there college expenses on the horizon? What are your financial goals?
- If you end up with a lower monthly payment, how will you handle the extra cash? In a perfect world, the cash you save on your mortgage payment should be used to pay down debt or to increase the size of your savings account.