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Refinancing a mortgage involves replacing it with a new contract. Your mortgage balance from the current loan will be paid off, and your new loan will go into effect. A mortgage refinance can be done through your original lender, or a new lender of your choice.
Depending on the type of loan you have, you may be able to qualify for a streamlined refinance, which requires less documentation and may not even require an appraisal. You may also be able to roll closing costs into your new loan amount for a no-cost refinance.
Refinancing your home loan has many advantages, especially if your existing mortgage carries a very high interest rate, you’ve built up home equity or improved your credit score, or your financial circumstances have changed. Here are some reasons you might want to refinance a mortgage.
If mortgage rates have dropped since you got your loan, or you have an adjustable rate mortgage and interest rates are climbing, you can refinance the balance of your loan and pay less interest on the new mortgage. Refinancing into a fixed rate mortgage, even if you have to pay closing costs, can save you tens of thousands over the life of the loan. This is typically a good move if you are still in the early years of your loan, when the majority of your monthly mortgage payment is directed towards interest owed.
If you have a need to put your hands on some cash, you can refinance your mortgage to borrow against the equity in your home. This usually means lengthening your mortgage loan term or increasing your monthly payments. You may be able to negotiate a lower interest rate as well when you apply for a cash-out refinance. A refi can help you afford home improvements, buy a new vehicle, pay down high interest credit cards, or fund a wedding or vacation.
You can also use a refinance to lower monthly mortgage payments by extending your loan term. You will pay more interest over the life of your loan this way, but if you are going through a tough financial time it can be worth it to have less of a mortgage bill every month. If refinance rates are favorable, or your credit score has improved over time, you may not end up paying much more than you had originally planned.
If you financed more than 80% of your home’s value due to a down payment of less than 20%, your lender likely insisted that you carry private mortgage insurance (PMI). This may be an annual or monthly expense, and you might have it rolled into your current mortgage payment or be paying it separately. In most cases, once you have enough equity (typically when your balance is equal to or less than 80% of your loan), you can refinance to save money by removing the mortgage insurance requirement.
You can save a lot of money (tens of thousands of dollars) with home refinance loans that offer a lower interest rate. If you have a 30-year fixed rate mortgage for $300,000 at an interest rate of 4.0%, you’ll pay a little over $1,425 a month and your total interest paid by the end of the term will be more than $210,000.
By reducing the interest rate just one point, to 3.0%, you would have a lower payment of just over $1,260 and your total mortgage interest paid would be reduced to less than $155,000. That’s well over $150 left in your bank account every month, and more than $55,000 saved over a 30-year span compared to your original mortgage.
Now is a great time for looking into a mortgage refinance to reduce your interest rate, lower your monthly payment, cash-out equity, or remove PMI. You can use our free Instant Rate Quote tool and Rate Tracker to find out how much you could be saving every month or over the life of your loan.
At Sammamish Mortgage, all of our Loan Officers (LOs) are salaried. This means they always put the client first, making sure you get the best loan for your budget, not the biggest one to earn a commission.
We offer some of the most competitive rates in the nation, and it’s our goal to give you a hassle-free refi experience. We’re proud to say we close most of our loans in 30 days or less. We offer a wide variety of home loans, including FHA streamline refinances, so you can start reaping the benefits of your refi as soon as possible.
For more information on your refinancing loan options, feel free to contact us today. We currently lend in all of Washington, Oregon, Idaho and Colorado. Our friendly team of experienced mortgage professionals will advise you on which refinancing program best meets your needs.
Are you ready to refinance your mortgage and lock in at a much lower interest rate than what you’re paying now? If so, Sammamish Mortgage can help you get started. Get in touch with us today!