Refinancing Your Home: The Basics
There inevitably will be moments in life when things get a little tight. As a homeowner, there are options available to reduce some of your financial stress. Refinancing your home is one way you can reduce monthly payments and/or free up cash to pay down other, higher-interest debts.
When you refinance your home, you are essentially asking that the Credit Union pay off your current mortgage and start a new loan. There are many reasons you might want to refinance; maybe your monthly payment has become a burden, maybe you just need a little extra wiggle room, or in many cases the interest rates may have dropped, and it just makes sense to refinance to a lower payment.
Before you begin setting up a plan to restructure your debt, there are a few things that you should know.
What does it mean to refinance?
Refinancing refers to “the attainment of a new loan to take the place of an older one.” There are two different types of refinancing available:
– Rate and Term Refinancing
This option makes sense if interest rates have fallen by 1% or more since you signed your mortgage agreement. It also makes sense if your financial situation has changed and you would like to increase, decrease, or lock-in your loan terms.
– Cash-out Refinancing
This option makes sense if you are needing to free up cash for other purchases or to pay off higher-interest debt. In this instance, you are asking the Credit Union to replace your existing loan with a higher balance, hopefully with more favorable terms. You will receive a distribution in cash when you do a Cash-out Refinance.
Why would you refinance your home?
There are many reasons you might want to refinance your home:
– Interest rates have fallen by 1% or more
– Your financial situation has changed
– You would like to pay off higher interest debt (i.e. credit cards)
– You can now afford to reduce the number of years you are paying on your loan
– To fund a large investment (i.e. starting your own business)
– You would like to shift from an Adjustable Rate Mortgage (ARM) to a Fixed Rate Mortgage
The information provided in this article is intended only to cover the basics and give you a little bit of insight into what it means to refinance your home, and why, someday, you may want or need to. If you think that refinancing your home might fit your needs, please call the ALLIANCE Home Loan Center at 806-776-0991 to set an appointment with one of our knowledgeable lenders. You may find the relief you need to start paying off debt or that you could be paying a lot less each month for your home!