What is refinancing?
You’ve heard of refinancing, but what is it? Refinancing is when you receive a new loan that revises and replaces the terms of an existing loan. Refinancing is ideal when you can lower your interest rate, monthly payment, and/or shorten the term of your loan. It’s often referred to in shorthand as a “refi”.
When interest rates drop, homeowners often look to refinance their home. Most experts agree that if you plan to be in your house for a least 18 months and you can get a rate at least 2% less than your current one, refinancing makes sense. According to data from 1994 to 2020 from Freddie Mac, the average time a borrower has had a mortgage before refinancing is 4.2 years.
Refinancing potentially allows you to:
- Reduce your monthly mortgage payments with a new, lower interest rate
- Consolidate credit cards, loans, or other debts to a lower interest rate
- Finance home renovations, weddings, vacations, or other large expenditures by using the equity in your home
Refinancing terms that can change include:
- Switching from an adjustable rate mortgage (ARM) to a fixed rate mortgage
- Changing the duration of the loan
- Lowering the interest rate
Refinancing includes a similar process to that of when borrowers first receive a home loan. The borrower’s credit and financial situation will be re-evaluated.
According to Freddie Mac, the typical refinance loan in 2020 was for about $300,000, with the typical borrower lowering their rate to 3.1% from 4.3%. The average annual mortgage payment savings for borrowers who refinanced in that year varied by location but were significant in cities such as San Diego ($3,624), Denver ($2,894), Phoenix ($2,547), and Tampa ($2,482).
Do you like the thought of consolidating your bills to help you better manage your monthly payments and reduce some stress? What about pulling out some cash to help check items off your home improvement list? Or does simply just lowering your monthly mortgage payment sound appealing?
If you are considering potentially lowering your payment or utilizing the equity in your home, start a conversation about refinancing with one of our Loan Officers today. We’ll be happy to talk about your short-term and long-term financing goals and find the program that best fits your financial situation.
At Peoples Mortgage, it’s all about the people.