When to Refinance
Refinancing is the process of replacing your existing mortgage with a new mortgage. The type of mortgage you select primarily depends on how long you plan to live in your home, your reasons for refinancing, and the amount of monthly payment you can comfortably afford.
Popular Reasons to Refinance
- obtain a lower interest rate
- build equity faster
- change loan type
- take advantage of an improved credit rating or, draw on equity already built in the home.
Obtaining a lower mortgage interest rate can lower your monthly payment and is the most common reason homeowners refinance. Building equity faster is also a popular reason because owning a home can be one of the safest and most profitable investments you can make.
There are two general types of refinancing; cash out and no cash out. A cash out refinance means the new mortgage is larger than the existing mortgage. Cash out refinancing is done when sufficient equity exists and the owner wishes to tap into it. Cash out refinancing can also be done as a second mortgage leaving the first mortgage intact. No cash out refinancing is done when the owner wishes to obtain a better rate and or terms on the new mortgage.
For more information, see our Refinance Considerations , Cash Out Refinance and No Cash Out Refinancing of a mortgage pages.