Refinancing 101

Refinancing a mortgage can be advantageous to many homeowners – but what does that really mean? It’s important to know what is a refinance, and what options exist for you. Let us walk you through some of the reasons you may consider refinancing today.Couple considering refinance options


Locking in a lower interest rate is all about timing. It’s generally advisable to look into refinancing when rates drop if you can shave at least 1% off your existing interest rate. Don’t forget to make sure the savings will outweigh the costs associated with a refinance before proceeding. Generally, a 1% drop is more than sufficient to justify any related closing costs.

Like your original mortgage, an appraisal and title search are required. A refinance also comes with application fees, and other minor closing costs, which can equate to between 1- 5% of your loan balance, depending on your area. These costs should be compared to the interest savings from the refinance.


There are instances where a rate drop can allow homeowners to refinance into a shorter-term loan with only minor changes to their monthly payment. Borrowers have been known to refinance into, say, a 15-year, fixed-rate mortgage from a 30-year term when rates are favorable. You’ll want to do the math on this one too to make sure it pencils for your situation. But if you can afford a shorter-term payment – take it. You’ll pay less interest and payoff that home faster.


Naturally, lowering your interest rate will lower your monthly payment. Once again, you have to factor in all the costs associated with a refinance to confirm this move makes sense for you. If cash flow is your primary goal, you may not be too concerned about starting another 30-year term. Talk to a loan advisor or use our mortgage calculator to determine the right term and monthly payment that works for you.


Some borrowers refinance to switch from an adjustable rate mortgage (ARM) to a fixed-rate loan, or vice versa. ARMs tend to start out with lower rates, compared to the fixed. However, they can also increase over time. Refinancing can prevent these future rate hikes if you lock into a favorable fixed-rate mortgage. At the same time, it also makes sense for some borrowers to switch from a fixed-rate to an ARM if rates are falling. This is especially true if the borrower doesn’t plan to stay in their home for more than a few years.


Refinancing can also be a way to access built-up equity when you need cash. Homeowners have the option to use these funds for whatever they like, be that a home repair, investment, consolidating debt, an unexpected medical bill or child’s college tuition. Though a cash-out refinance is an option, it isn’t one that should be taken lightly. Most loan programs do not allow you to tap 100% of your equity, you’ll want to consult with a loan advisor on your options.

Refinancing can free up cash, save you money and result in more favorable loan terms for your specific financial situation. If you’ve weighed your options – or are looking to weigh your options – give Lawrence Kinsey a call to see how a refinance may benefit you.