Refinancing is when a person replaces their current mortgage with a new one that features either a lower interest rate or shorter term. When refinancing, the old mortgage is paid off when the new mortgage is obtained.
There are two main types of refinancing:
Rate and Term-Financing: This type of refinancing is when a person adjusts their mortgage’s remaining balance for a lower interest rate and term they can afford. Term is how long it will take a person to pay off the loan.
Cash-Out Refinancing: With this type of refinancing, a person takes out a new mortgage for more than they owe. They will then receive the difference in cash or it can be put towards another debt.
Refinancing can also be used to switch from an adjustable rate loan to a fixed-rate or eliminate the insurance associated with an FHA mortgage.
When does refinancing make sense?
TO LOWER THE INTEREST RATE
How much have rates dropped since you first received your loan? Rates have dropped substantially the last five years Also; a person should take how much they still owe into consideration. The savings should justify the effort of refinancing.
REDUCING TERM OF THE LOAN
If a person wants to pay their home off quicker, refinancing is a great way to do that. If you are planning on moving in the near future, refinancing is probably not the best option.
CONVERTING FROM ADJUSTABLE-RATE TO FIXED-RATE
An adjustable rate mortgage can save money at the beginning of the loan but as rates rise, so does your monthly payment. By switching from adjustable to fixed-rate, you know exactly how much you will be paying every month of your term.
With cash-out refinancing, you receive cash at a low interest which you can then use to pay off debt with higher interest rates.
We here at Cyprus Credit Union are your mortgage partner. Our team of highly specialized, professional loan officers will take a look at your financial situation, help you find the product that works best for you, and then be there to assist you every step of the way. For more information and our current rates, you can check out our website & mortgage center or call (801) 260-7700.