Cash-Out and Rate and Term: Should You Refinance Your Mortgage At All?

mortgageRefinancing your mortgage means that you’ll basically exchange your old mortgage for a new one that features better interest rates, terms, and a potentially new balance. Essentially, when you decide to apply for a home refinance loan, you can choose from cash-out refinance or rate and term refinance. Wasatch Peaks Credit Union shares more information below:

Rate and Term Refinance Mortgage

Generally, rate and term refinancing involves exchanging your older loans for a newer one without increasing your mortgage amount. This will result in a loan with a reduced interest rate and a shorter term. Homeowners typically choose this refinance option to obtain a reduced interest rate, trading their fixed rate loan into an adjustable-rate mortgage (ARM) loan and vice versa, consolidating several loans, or trading an FHA mortgage to a conventional mortgage.

But, since you won’t be acquiring cash directly from this refinancing option, you must factor in the closing costs as well as other related expenses. Determine your break-even point prior to deciding to go with this refinance option. Basically, your break-even point is when you recoup your refinancing expenses through your lower mortgage payments every month.

Cash-Out Refinance Mortgage

With cash-out refinancing, you trade in your existing loan to get cash, literally. It will allow you to dip into your home equity; your property’s value minus all existing liens or loans. While this may seem like the perfect solution, it’s really not for everyone. Even if you do get cash, literally, you’ll also be stuck with a higher outstanding loan balance you’ll have to pay off and closing costs.

With all these in mind, you should only go for cash-out refinancing if you feel that this home refinance option is best for your personal circumstances. This is because you’ll be paying for the cash provided later on.

Should You Refinance Your Mortgage?

Regardless of what lenders or banks tell you, refinancing is not always the best option for all homeowners. But, it can easily lead you to spend more money if you do not research your options well and properly calculate your numbers.