When you refinance your mortgage, you pay off your existing loan with the proceeds from a new loan. Refinancing can provide several possible benefits, which vary based on prevailing mortgage rates and your personal situation:
- Lower your monthly payments: If rates have fallen since you took out your existing mortgage, you may be able to reduce your monthly mortgage payments by borrowing at lower rates. This transaction is typically called a "rate refinance".
- Avoid potential increases in monthly payments: If you have an adjustable-rate mortgage with a payment that is going to re-set in the near future, you may be able to fix your rate with a new mortgage. This transaction is typically called a “rate/term refinance”, since you are changing the type of loan you have.
- Pay off your mortgage faster: Refinancing to a shorter mortgage term allows you to build your home equity faster. A faster payment schedule can result in higher monthly payments, but if rates have fallen since you took out your existing mortgage, that increase could be offset by lower interest costs. You could save thousands of dollars in interest cost over the life of your loan.
- Borrow additional cash: You may be able to refinance your first mortgage for more than what you currently owe, allowing you to take cash out of your property. This transaction is typically called a “cash-out refinance”. You can use this cash to pay off other debts (debt consolidation) or for other purposes. Mortgage interest rates are often less than other consumer loans and are usually tax deductible. Contact your tax advisor for more information about deductibility of interest on a cash-out refinancing. A cash-out refinancing typically results in higher monthly mortgage payments, unless the new mortgage has a significantly lower rate than your existing loan.
To learn more, contact your Apple Mortgage Consultant by calling 1-800-333-2775.