You may have heard that now is a good time to refinance your home. But what is refinancing?
Simply put, refinancing is the process of obtaining a new home loan that has better conditions than your current home loan. The proceeds of the new loan are used to pay off the balance of the original loan. Often, fees for the new mortgage are rolled into the new loan amount, so there is little or no out-of-pocket cost to the borrower.
Given the right conditions, a refinance can save a homeowner money if the new loan has a lower interest rate or a shorter term. Refinancing can also be used to convert an adjustable loan to a fixed loan or to consolidate debts.
Homeowners may seek to refinance for a number of reasons, such as to take advantage of lower interest rates, to reduce the size of their monthly payments or to trade an adjustable-rate mortgage for a fixed-rate one. The specifics of the process may vary depending on the actions of both the lender and the borrower.
Refinancing is not a silver bullet to solve all of your financial problems, however. As with any loan, there are closing costs and other fees to consider and you will still pay interest over the life of your loan. If your current loan is almost paid off or already has a low interest rate or favorable terms, you may be better off staying with your current loan.
In our next few blog posts, we will take a look at when you should consider refinancing, refinancing options, and the refinancing process. However, these are only general guidelines. If you are considering refinancing your home, contact us today so we can give you advice specific to your situation.