What is a Mortgage Refinance?

ARM (Adjustable Rate Mortgage) Savings - It may make sense to refinance your mortgage into an ARM if you plan on being in your home for only a few years. After all, why pay the higher current interest rate on a 15 or 30 year fixed mortgage, when you can pay a lower rate (Usually, but subject to greater risk) for the shorter period of time you'll be living in the home? If, however, you decide to stay for a longer time frame, you may choose to consider the fixed rate loan. If you already have a fixed rate mortgage and are considering moving within the next few years, it may make sense to consider refinancing into an ARM. Not only can this lower your monthly payment, but by choosing certain loan types, you can refinance your home loan with no out of pocket expenses.

Take Cash Out - Would you like to have money to pay off credit cards and other high interest debt, finance home improvements, buy a new car, finance a second home purchase, pay a college tuition or even go on vacation? If so, perhaps a cash-out mortgage refinance is for you. Typically, you may be able to take out up to 75% of the value of your home, but with some options this may rise to 90%. Also, unlike borrowing on credit cards, which utilize compound interest calculations, mortgages use simple interest, which may save you significant interest. Moreover, interest paid on mortgages is tax deductible (see your tax professional to evaluate) and this may result in additional savings.

Eliminate Mortgage Insurance - If you purchased your home with less than 20% down, you probably have a monthly mortgage insurance payment along with your principal and interest. But, since your purchase, you probably have increased your equity percentage. In fact, because of rising home values, you may have exceeded the 20% figure simply because your home has become more valuable. Unfortunately, you may not be able to cancel your mortgage insurance yet. A home loan refinance to eliminate mortgage insurance should be designed to not only get a loan without mortgage insurance, but also to find a rate that is lower than your current loan. The ideal situation would be to reduce your rate by more than just the cost of your monthly mortgage insurance payment alone.