Before you proceed with a decision to refinance a home, you need to do your homework. Fortunately, Chelsea State Bank has put together the Beginner’s Guide to refinancing your home. The reasons for moving forward to refinance a mortgage generally fall into two categories:
1. Getting a better interest rate to save money and,
2. Getting cash out for things like remodeling or emergencies.
A refinance can give you an opportunity to shorten the length of time left on your current mortgage at a better interest rate – like refinancing a 30-year mortgage to a 15-year mortgage. Other reasons people choose to refinance include getting out of an adjustable-rate mortgage and moving into a fixed-rate.
Refinance to a 15-Year Mortgage
With mortgage rates still historically low, refinancing a 30-year mortgage into a 15-year mortgage loan term has been a very popular option in recent years. Primarily, this is because you can pay off your loan faster when you refinance a home, save tens of thousands of dollars in interest, and get a lower mortgage rate. Your mortgage payment will most likely be higher with a 15-year loan, but a larger percentage of your payment will go toward the principal balance.
Refinance Out of An Adjustable-Rate Mortgage
Adjustable rate mortgages have an initial period, for example, five years of a low initial rate, after the period is over the rate will increase each year. If you have an adjustable-rate mortgage, chances are you are going to need to refinance a home at some point. You can refinance into another adjustable-rate loan, or lock-in to a low fixed rate. The loan officers at Chelsea State Bank can guide you in making the right choice.
Refinance Out of An FHA Loan
If you have an FHA loan, you may be able to reduce your loan costs by removing private mortgage insurance (PMI). Then, you’ll refinance into a conventional mortgage to eliminate this insurance. If your home’s value has increased since you closed on your loan the new market value might enable you to drop PMI. You will want to speak to a loan officer at Chelsea State Bank about your options.
Future Goals
Just as important as rates and saving money, your decision to refinance a home should be centered on your future goals. A common, important reason is saving money for long-term financial security. Others might be looking to get a better interest rate on your mortgage, reduce monthly payments, or get cash out for a home project or other needs. Refinancing is a great option to put more money in your pocket now or in the future. Additionally, it can make your finances significantly easier to manage and, in many cases, can save you money in interest payments over the course of the mortgage term.
Refinancing a home can be a great way to save money to reduce the length of your loan entirely. Many times, it makes more sense to take on a shorter term because it will save you money in the long-term. For example, five fewer years of making payments on your mortgage loans would mean significant savings on monthly interest and principal payments. This could also mean you have the option to retire early or can start saving for the next big adventure now.
At Chelsea State Bank we can help homeowners understand how lower interest rates might save you money even when considering costs after you refinance a home. We can also help you decide which mortgage is best for your budget and lifestyle and if a cash-out refinance is an option for you, as well.
Consider Interest Paid
Before moving forward, it’s important to take into account how much interest you’ve already put toward your initial loan. How much would you then need to pay with the refinance? Loans are generally front-loaded with interest. Because of this, the longer you pay, the more each of your payments reduces the principal balance. You’ll want to ask your Chelsea State Bank lender about the options for lowering your interest rate and whether the term will also decrease, remain the same, or increase.
Whatever your motivations for refinancing your mortgage, always consider your long-term goals and remember to contact Chelsea State Bank regularly to keep your refinance options and financial wellness in focus.
Chelsea State Bank is the local bank with Big-Bank perks. We offer a Buyer’s Edge prequalification application – a fast, easy, online application, from your local bank – as well as multiple types of competitive mortgages and all the assistance you’ll need to pick the right loan for your goals.
Learn more about the advantages of working with your local community bank. Talk to one of our mortgage loan experts at Chelsea State Bank. Contact our office by phone: (734) 475-1355 or online: https://www.chelseastate.bank/mortgages/
