A Smart Guide to Refinancing

Refinancing is simply getting a new mortgage loan on your house to replace the one you have now. When you refinance, your lender – which does not have to be the same lender from whom you got your original mortgage – pays off your existing loan and then creates a new one.

Most people refinance to take advantage of lower interest rates or to get better loan terms. This can reduce their monthly payments, allow them to pay off the loan faster (and shorten the amount of time they are in debt and paying interest) and let them obtain extra cash for paying off other debts or to make home updates or repairs.

Who Can Benefit?
If you’ve only owned your home a few years and don’t have much equity built up, refinancing may not be a good option. But if your home is now worth more than you owe on your current mortgage, refinancing at a lower rate could be a good choice.

If you’ve got some equity, have good credit and plan to stay in your home for a while, the math of refinancing could definitely add up in your favor. But if none of these things apply to you, it probably doesn’t make sense, no matter how low interest rates are.

Just like it did when you got your first mortgage, your credit worthiness matters, so if your credit has suffered in the time since, you may not be eligible for a new mortgage. Even if you are, the rates available to you may not make it worth it, due to other expenses like new closing costs, etc.

Also, if you don’t do your homework, refinancing could end up costing you – not saving you – money. Always compare rates and terms and read all the loan documents thoroughly before signing.