Generally speaking, a loan refinance is a new loan to replace an old loan. Let’s look at the various reasons why a refinance would be appropriate.
LOWER MONTHLY PAYMENTS – If your current interest rate high, refinancing at a lower rate can save you significant money each month. For example, if your loan amount was $300,000 and your rate is 5%, your monthly Principal and Interest (P&I) payment would be $1,633 per month. If you refinance the same $300,000 at a rate of 4%, your monthly P&I payment would be $1,432 or a savings of $201 per month. This equates to a savings of $2,412 per year and will save you $12,060 in five short years!
LOWER INTEREST RATES – Interest rates can be lowered due to a change in the industry as a whole, such as the example above. Interest rates can also be lowered by shortening the term of the loan. 15 year rates will be lower than 30 years loans. Adjustable Rate Mortgages (ARM’s) are loans that are fixed for a specific time period such as 3, 5 7 or 10 years and will typically be offered at rates lower than a 30 year fixed loan.
SHORTEN LOAN TERM – A loan refinance can be considered as a way to reduce the length of your loan. Changing from a 30 year loan to a 15 year loan can greatly reduce the number of payments needed to pay off your loan. This is often used by borrower’s who have increased incomes since the beginning of their initial loan and can afford the higher monthly payments.
CHANGE FROM ‘ARM’ TO FIXED – Adjustable Rate Mortgages are fixed for a period of time and then they begin to adjust or change rates on an annual basis. Refinancing to a fixed rate term alleviates potential rate increases that can occur with the ARM’s.
COMBINE TWO LOANS INTO ONE – When purchasing a home, many borrowers obtain two loans to reduce the amount of down payment or to keep from paying mortgage insurance. As the value of the home increases, a single mortgage can replace both loans at a lower rate than the original two loans.
ELIMINATE MORTGAGE INSURANCE – Initial loans with a down payment of less than 20% will often have monthly mortgage insurance payments as part of the mortgage payment. Also, FHA loans include monthly mortgage insurance payments that you continue to pay for as long as you own the loan. As the loan balances decrease and property values increase, refinancing into a new loan with a loan-to-value of at least 80% will eliminate the need for mortgage insurance payments.
CASH OUT –With enough equity in a property, refinancing is a great way to get cash that can be used for virtually any reason.
Some examples may be:
-Home Renovations/Additions
-Auto purchase
-Boat purchase
-Medical bills
-College Education
-Pay off other debts that carry higher interest rates such as credit cards
If any of these scenarios seem to match your situation, please feel free to contact me to discuss how a mortgage loan refinance can benefit you.
NMLS # 838973
Keith Harris
Senior Loan Officer
Intercoastal Mortgage Company
Direct: (703) 259-0788
Cell: (703) 395-6601
The JS Realty Team – not only serving Brambleton, serving all of Northern Virginia.
