Owning your own home is an exciting financial milestone, but is your current financing plan the best one for your current situation? For some, refinancing can be a great way to help you pay off your home in a way that works best for you.
Here are three ways refinancing a mortgage could have an immediate impact on your financial situation.
1. Lower payments can relieve budget pressure
Increasing your cash on hand can provide a sense of security. Refinancing your mortgage at a lower rate allows you to reduce the amount you spend on your mortgage every month, freeing up that cash for other things. For example, you might put those funds toward building up your emergency savings. The difference between the rate on your existing mortgage and the rate on your refinanced mortgage will dictate how much lower your monthly payment will be.
2. Shorter loans mean faster payoffs
Refinancing into a loan with a shorter term can help in situations where borrowers want to get more aggressive about paying down debt. For example, if you want to retire in the next decade or so but still have 22 years left on a 30-year mortgage, refinancing to a 15-year loan might make sense. If the new rate is substantially lower than the old one, the monthly payment on a refinanced 15-year loan could be comparable to that of your current loan. While your immediate cash flow might not improve, you would end up paying your loan off sooner.
3. An opportunity to use your home equity
Refinancing also provides an opportunity to unlock some of the equity in your house. A cash-out refinance involves taking out a new loan that exceeds the amount of principal left on your current loan, generally up to 80% of the home’s current value. You get the difference in cash, to do with as you please. However, it’s generally wise to have a specific plan for that cash, since you will have to pay it back with interest. For example, you might want to consolidate high-interest credit card debt or renovate your home.
It’s important to have a plan
While there are many good reasons to refinance a mortgage, those reasons don’t necessarily mean it’s the right move in your current financial situation. A trusted financial advisor can be a huge help when it comes to making the right decision at the right time.
Reach out to us if you think a mortgage refinance might benefit your financial situation. We offer a full suite of digital tools customers can access from anywhere, including an online application with instant pre-approval, as well as online document signing. Whether refinancing is right for you or not, we can talk through your situation, understand your needs, and work with you to develop a plan that fits your unique circumstances.
Apply online or contact a loan officer to start your refinance journey.
For additional financial education resources for homeowners, visit our Financial Education Center.