Home Loan Mortgage Refinance Loan Question

Why Would I Want to Refinance My Home Loan Mortgage?

There are many reasons but the primary one is to reduce the interest rate on your current mortgage loan. If your rate is at 8.00% and current rates are at 7.00% then you might consider refinancing your mortgage to get a lower payment. It really doesn't make much sense to refinance if rates go up, right? But lowering a monthly payment may make sense to you if you can save money on mortgage interest. Refinancing to get a new rate is called a rate-and-term refinance. Your changing the interest rate, and changing the term, or length, of the new note.

Let's say you bought a home a few years ago and borrowed $200,000 when the interest rates were 7.50%. With a 30-year fixed rate mortgage that payment would be $1,398. Later, mortgage rates dropped to 6.375%. which would give you a new monthly payment of $1,247, saving you $151 per month. That's a hefty difference. Taken out to full term, that's a saving of over $54,000 in mortgage interest while at the sam e time freeing up $151 each and every month.

Another reason to refinance might be to go from an adjustable rate mortgage to a fixed rate mortgage to remove the uncertainty that adjustable rate mortgages carry. Yet another reason maybe to get a hybrid loan or an ARM when fixed rates are relatively high. If mortgages rate seem to be at a peak and there's not a whole lot out there under 8%, some borrowers take an ARM that has a lower start rate. Instead of an 8% fixed, say a borrower elects to take a 6% 3/1 ARM. A couple of years later rates begin to move down and fixed rates hit 6%, the same rate as the hybrid. At that point, it would be wise for the borrower to evaluate whether to get out of an adjustable rate and moved into a fixed one.

That strategy can also work in reverse. Some people want to get the lowest payment possible on their loan regardless of whether its fixed or adjustable. One can always move from a fixed to an ARM. Still another reason to refinance might be to pull some equity out of your home in th form of cash while at the same time bringing down your over-all interest rate. There can be many reasons to refinance your mortgage.