Lower your monthly payments
Refinancing to a lower interest rate can lead to significant savings on your monthly mortgage payments. The downside is that less of your payment will initially go towards principal, thanks to amortization. That’s why many borrowers opt to pay extra each month to pay down the principal and get out of debt faster.
Save money on interest
By refinancing to a lower interest rate, you could potentially save thousands of dollars in interest paid over the life of the loan. Use our refinance calculator to see what your lifetime savings could be. Just keep in mind that there are fees associated with a refinance, so be sure to look at the breakeven point when estimating your overall savings.
Pay off your loan faster
If you can afford a higher monthly payment, replacing 30-year fixed rate mortgage with a 15-year fixed rate loan during your refinance can help you pay off your loan faster and get out of debt sooner. Another benefit of a 15-year fixed loan is that you’ll likely get a lower refinance rate than if you refinanced with a 30-year loan.
Fund large expenses
If you have enough equity in your home, a cash-out refinance could help you use your equity to pay for large expenses like college tuition, home renovations or paying off other debts with higher interest. A cash-out refinance is when you refinance your mortgage for an amount higher than your current loan balance, and keep the difference.
Change loan types
Refinancing is great opportunity to change your loan type. For example, you could refinance from an ARM to a fixed rate mortgage for more predictable payments, to a loan with a shorter term to pay it off faster or from an FHA loan to a conventional loan. Be sure to review the benefits of each loan type with your refinance lender.
Get rid of mortgage insurance
If you currently have an FHA loan, you’re probably required to pay mortgage insurance for the life of the loan. But once you’ve built up 20% equity in your home, you can get rid of the mortgage insurance premiums by refinancing to a conventional loan. Just make sure the PMI savings outweigh the cost of the mortgage refinance.