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  • Writer's pictureJeremiah McGuire

Refinancing: When, Where, Why, and How?

Updated: Jun 2, 2023

Refinancing your mortgage is something most homeowners consider at least once throughout the lifespan of their home loan. “Refinancing” can be a scary word for many people, but that shouldn’t be the case for you. For many homeowners, refinancing can not only lower your monthly payments and help with your monthly budget, but it can save you thousands of dollars in the long run. It allows you to pay off your previous loan by applying for a new one that has better financial advantages, like a lower interest rate or a shorter repayment period.

While there are many good reasons to refinance, here are five common ones.

Scoring a lower interest rate. The number one reason homeowners decide to refinance is to secure a lower interest rate on their mortgage. Not only does this save you money in the long run and decrease your monthly payment, but you can start building equity in your home sooner.

Using an improved credit score. Even if interest rates have not dropped in the market, if you’ve improved your credit score over the last few years, you may be able to reduce your mortgage rate.

Shortening the loan’s term. If interest rates are decreasing, there is a chance you may be able to get a shorter loan term with little to no change in your monthly payment, allowing you to pay off your loan sooner.

Switching from an adjustable rate to a fixed rate. If you chose an adjustable-rate mortgage with great introductory rates when you initially financed your home, that rate may increase significantly over the years. By switching to a fixed rate while interest rates are low, you can protect yourself from future increases.

Cashing out home equity. If there is a big purchase or payment on the horizon, such as funding a wedding or going back to school, your best option may be to use the equity you’ve built in your home to borrow money at a lower cost.

It's not too late!

For years now, we’ve been hearing that interest rates will be on the rise, and although there have been some small increases, you’re still in a great position to drastically lower your interest rate. The general rule is if your mortgage interest rate is more than one percent above the current market rate, you should consider refinancing.

Don't let it scare you.

Don’t brush off refinancing just because it seems like a long and daunting process. An informational call with a lender to see how rates compare will only take a few minutes. There are also some programs for streamlining the application process. And besides, isn’t the amount of money you could save worth the time and effort?

ARM's can be refinanced, too.


Seeing your Adjustable Rate Mortgage (ARM) increase after the introductory period can be incredibly stressful and place a squeeze on your budget. Many people assume they’re stuck, but ARMs can be refinanced, just like fixed-rate mortgages. You can even switch to a shorter term fixed-rate mortgage, such as 10 or 15 years. The longer you’re planning to stay in the home, the more sense it makes to look into refinancing. What can you do with a refinance?

Mortgage Refinance: If you’ve been making payments on your home for a few years and your interest rate is higher than current market rates, you may be eligible for a mortgage refinance, reducing your payments and freeing up some money.

Cash-Out Refinance: You can tap into your home equity and borrow up to 80 percent of your home’s value to pay off your current mortgage plus take out more cash to cover the renovations. This option is encouraged only when you’re making improvements that will increase the value of your home, as it can add a lot of interest and fees.

Home Equity Line of Credit: Getting a home equity line of credit allows you to borrow money against the value of your home. You receive usually up to 80 percent of your home’s value, minus the amount of your loan.

If you feel that this information may help you or a client, please reach out. It is my mission to help others.


Jeremiah L. McGuire

Attorney

Memphis, TN

901-494-1622

jeremiah@harkavyshainberg.com

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