The four most common reasons to refinance are:
To Lower the Interest Rate
This is the most common reason to refinance. By taking advantage of a drop in interest rates, homeowners can save on the long term interest costs on their loan.
To Change the Loan Program
Some examples of this would be moving from an ARM to a fixed rate loan, or from an FHA loan to a conventional loan to get rid of monthly mortgage insurance costs.
To Change the Loan Term
Moving from a 30 year fixed rate loan to a 15 year fixed rate loan can raise the monthly payment, but the long term cost of the loan is often significantly less due to the decreased amount of interest owed.
To Use Equity to Consolidate Debt
Some homeowners opt to take cash out through a refinance to pay down consumer debt.
Will A Refinance Benefit Me?
Dropping your monthly payment sounds like a great deal, right? But first, you have to take into consideration the costs of the refinance and compare them to the amount of time it will take for that lowered monthly payment to benefit you.
Many lenders recommend looking into refinancing if you could lower your interest rate by 1% or more, but you also must take into consideration how long you plan to stay in the home before making your decision. Your loan officer will be able to help you calculate the net benefit of refinancing and how long it will take to break even on a new loan.