Should I refinance my mortgage? Top 5 reasons to refi

• Lower monthly payments
• Consolidate debt
• Get cash on hand
• Pay off your mortgage faster
• Gain stability

Different types of refinances can help you reach these goals, and some may be better than others for what you have in mind. To understand what’s right for you, let’s break down each benefit of refinancing your mortgage.

1. Lower monthly payments

A lower monthly payment may be the biggest benefit of refinancing a mortgage, but it only works if your new mortgage rate is lower than your original rate. Otherwise, your payment could go up. If you’re interested in refinancing, be sure to keep an eye on the most current rates. Even a small difference in percentages can have a sizable impact on your monthly payment. In addition to decreasing your monthly payment amount, reducing your interest rate can help you save money in the long term and build equity in your home faster.

If lowering your monthly payment is your top priority, a rate-and-term refi is likely the best fit.

2. Consolidate debt

Your debt situation is one of the main factors to consider when refinancing a mortgage. If you have debt in multiple areas, refinancing could help you consolidate it.* Using this method, you can replace multiple loans with one loan, leaving you with one convenient monthly payment. If you’re going to have debt, you might as well make it as simple as possible to deal with, right? The key here is not to accrue new debt once the refinancing has consolidated your old debt.

If debt consolidation is your goal, a cash-out refinance may be your best bet.

*Using your home equity to pay off debts or make other purchases does not eliminate the debt or the cost of the purchases, but rather increases the loan amount of your mortgage to be paid according to your new mortgage terms.

3. Get cash on hand

Want access to more flexible funds? A cash-out refinance can help. This type of refinance allows you to tap into your home’s equity and turn it into cash. Borrowers who refinance often use this money for remodeling or landscaping projects. How does it work? Refinance your existing mortgage into a new one for a larger amount and pocket the difference (minus closing costs). But be advised—lenders usually limit the loan amount of this type of refinance to 80 percent of your home’s equity.

4. Pay off your mortgage faster

If you plan on staying in your current home for a long period of time, it may be a good idea to refinance your mortgage to obtain a shorter term. For example, you may want to refinance your 30-year loan into a 15-year loan. Although your monthly payments will increase, you’ll save money on your overall interest payments and own your home, free of mortgage debt, in half the time. 

When paying off your loan sooner is the goal, a rate-and-term refi is usually the right move.

Pro Tip: Use our refinance calculator to see how much a refinance could save you.

5. Gain stability

Most people don’t like surprises when it comes to money. If you’re one of those people who like to know what’s coming ahead of time, refinancing your mortgage could be a perfect fix. One of the pros of refinancing is it can be a great solution for borrowers who are struggling with financial stability. If you started with an adjustable-rate loan, refinancing into a fixed-rate loan can help you make steady payments—especially if you are concerned with inflation and the resulting possibility of higher monthly payments.

Are there any other reasons I should refinance my mortgage?

Everyone’s situation is unique, so your reasons to refi may be different than what we’ve discussed here. One benefit of refinancing your mortgage that sometimes gets overlooked is financing home upgrades. Whether you want to use the cash from a cash-out refinance for this or refinance to a renovation home loan, your mortgage can do more for you than you might think. Reach out to a loan originator anytime to explore your options.

Lower monthly payments are just one of the many great reasons to refinance your mortgage.

The post Should I Refinance My Mortgage? 5 Reasons to Say “Yes” appeared first on Cardinal Financial.

When you’re ready to buy a house, it’s a good idea to go into your dealings with a lender with a solid idea of what types of mortgages are available to you and the pros and cons of each. Depending on your financial situation, your future plans, and your reason for buying the house, the loan that best suits you may be completely different from what you were expecting. Here, we’ll break down six different types of loans: Fixed Rate, Adjustable Rate, Conventional, Government Insured, Conforming, and Non-Conforming—and dive into the advantages and disadvantages of each.

When you’re ready to buy a house, it’s a good idea to go into your dealings with a lender with a solid idea of what types of mortgages are available to you and the pros and cons of each.

fixed-rate loans vs. adjustable-rate loans

The difference between a fixed-rate loan and an adjustable-rate loan is pretty simple. They’re both pretty much what their names imply. When you choose a fixed-rate mortgage loan, the interest is fixed for the entire life of the loan, locking you in at a set interest rate. The length of the loan can vary, but the two most common terms are 15 and 30 years. One of the advantages of a fixed-rate mortgage loan is that you know what your monthly payment will be for the duration of the loan. This makes it easier to budget and plan for months in advance. The downside is that if you take out a loan while interest rates are high, you’re locked into that rate for the life of the loan. Although you may be able to refinance, be mindful that it’s not guaranteed.

Adjustable-rate mortgages, also known as ARMs, have interest rates that change throughout the life of the loan as interest rates fluctuate. ARMs usually have a fixed-rate period at the beginning that lasts between five and 10 years. After that, the rate switches to variable. The variable rate is typically set using a benchmark index rate that is based on market conditions and fluctuates from month to month. The advantage of a variable interest rate on a loan is you won’t be locked into a high rate for the life of your loan. On the other hand, this makes it tougher to budget and interest rates can rise over the years just as easily as they can fall, opening up the possibility of having a higher interest rate than you would with a fixed-rate loan.

conventional loans vs. government-insured loans

A Conventional loan is originated by a bank or private lender and is not insured by a government agency. Lenders will look long and hard at credit scores, debt-to-income ratios, and financial history in evaluating Conventional loan applications. A down payment of at least 3% is usually required, but you may opt to pay more in order to decrease your mortgage payments down the road. Since these loans aren’t insured by a government agency, you’ll likely have to purchase private mortgage insurance if your down payment is less than 20%.

If you’re looking for more lenient lending standards, government-insured loans like FHA and VA loans may be right up your alley. These loans tend to be more flexible than Conventional loans, accepting lower credit scores and smaller down payments. Insured by the Federal Housing Association, FHA loans could be a good choice for you if your financial history is less-than-stellar. VA loans typically don’t require a down payment at all, but they are only available to veterans, active-duty servicemembers, and surviving spouses.

conforming loans vs. non-conforming loans

A conforming loan is one that meets certain guidelines established by the Federal Housing Finance Agency, also known as the FHFA. The amount you can borrow is limited, and that limit changes every year based on FHFA guidelines. Conforming loans offer better interest rates and lower fees than non-conforming loans.

While there are several types of non-conforming loans, the most common is a Jumbo loan. As their name implies, Jumbo loans exceed the limited borrowing amount of a conforming loan. Because of the size of the loan, the requirements to qualify are a lot more strict, and interest rates are usually higher because they are considered more of a risk to the lender. There are other types of non-conforming loans for borrowers with bad credit, high debt-to-income ratio, and borrowers who have filed for bankruptcy.

Knowing the different types of mortgage loans that are available to you is a key tool in ensuring that you receive the best possible loan for your situation. There’s not one type of loan that’s “better” than any of the others—it all depends on your situation. Do your homework and speak to a mortgage expert to find out how each of these types of loans applies to your specific situation so you can make the best possible decision.

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