If you are considering refinancing your mortgage, there are several options — each designed to meet specific goals. Be sure to talk with your lender about the costs and benefits of each option as refinancing will require both time and money.
Refinancing replaces an existing loan with a new loan that pays off the debt of the old loan. The new loan should have better rates or terms that improve your financial situation.
No cash-out refinance
With a no cash-out refinance you are primarily refinancing the remaining unpaid balance on your mortgage. This is the most common option and may make sense if you’re looking to:
Lower your mortgage rate. If mortgage rates are lower than when you closed on your current mortgage, refinancing could reduce your monthly payments and the total amount of interest that you pay over the life of the loan.
Move from one mortgage product to another. If your current mortgage is an adjustable-rate mortgage (ARM) and it no longer makes sense for your financial or personal goals, refinancing your loan can put you in a more secure and stable mortgage, such as the 30-year fixed-rate mortgage.
Build equity faster. If your financial situation has improved since your purchase, you may consider refinancing to a loan with a shorter term (e.g. from a 30-year fixed-rate mortgage to a 15-year fixed-rate mortgage). Your payments will most likely be higher – even if you refinance into a lower mortgage rate – but you can build equity faster, own your home sooner and pay less in total interest.
If you’ve built up significant equity through your monthly payments and your home’s appreciation, a cash-out refinance may make sense to improve your general financial situation or the value of your home through improvements.
With a cash-out refinance, you’re refinancing your mortgage for more than you currently owe and, in return, getting a portion of your equity back in cash. Cash-out refinances generally have a slightly higher mortgage rate because you are borrowing more money, which is an added risk to the lender making the loan.
If you’re thinking about a cash-out refinance for home renovations, learn more about our CHOICERenovation℠ mortgage.