Refinance is a common term you might hear and there are a few reasons why people refinance.

Refinance just means you are going to get a whole new loan and payoff your current loan replacing it with the new one. You might refinance for any of these reasons:

Rates!

You bought a property and at some point later rates went down and you want to take advantage of a lower rate. You can refinance and take a whole new loan at the lower rate reducing your payment. There are closing costs associated with refinances but the bank can offer you a rate that is .125 or .25% higher than market in order to be able to cover all the costs as part of the deal. For example, the bank might be able to offer you 4.00% with closing costs of say $2800 OR 4.25% with no cost at all. If you are at 5.00% currently, you will be happy to have either rate and you’d want to consider the amount of additional savings the 4.00% will get you over the 4.25% to find out how long it’ll take you to recover the $2800 cost.

Cash-Out

Sometimes people have a bunch of equity in their homes either from doing a lot of work (sweat equity) or just because of basic appreciation over the years and they want access to this cash to use it for something else. We can order an appraisal and generally speaking do a cash-out refinance increasing your mortgage to up to 80% of the newly appraised value. You will pay-off your former mortgage and take on the new one. If you currently have a below market rate you would be sacrifice that rate to get the additional funds, so that is a consideration. If the market rate is below it is a win-win since you can access the equity, get cash out and drop your current rate.

Taking a Borrower Off of The Loan

Most commonly in a divorce situation one of the two borrowers might want to or have to come off the loan so that they are no longer responsible for the payments or so that they can buy their own property and not be weighed down by the loan on their former home. Unfortunately the only way to do this is to refinance the current loan to take their name completely off. Someone can be removed from a deed or title to a home but not the mortgage note without a refinance.

Change of Terms

Sometimes people want to change from a 30 year fixed to a shorter term loan such as a 15 year or 20 year fixed and pay it off much quicker, while obtaining a lower rate while they are at it since the lower the fixed period typically the lower the rate. Alternatively, people who do ARM loans at some point sometimes decide they want to go fixed because they plan on begin in the house for awhile. There are many reasons people might want to switch from one product to another and I’m happy to discuss the benefits of doing so.