Refinancing

January 11 2022

Reasons for Mortgage Refinancing: Consolidation and Cash-Out

In part one of this two-part blog series, we went over some of the common reasons why homeowners choose to refinance their mortgage. Refinancing may come with several different benefits, whether you need to lower payments, change your rate format or possibly take advantage of a few other possible areas, and knowing this full landscape is important if you’re going this route.

At Primary Residential Mortgage, we’re happy to offer a variety of mortgage programs, including assistance to clients with all their refinancing needs. What are some of the other reasons you might be considering making this move? Here’s a basic primer.

Combining Two Mortgages

In some cases, homeowners will use refinancing as a way to combine two mortgages that they’re carrying. For instance, if you’re taking out a mortgage for a second home, or perhaps a Home Equity Line of Credit (HELOC), you may look to combine this with your initial mortgage — and there may be cases where doing so will actually make both interest rates lower.

First and foremost, this is convenient — you’re only required to make a single monthly payment rather than dealing with multiple bills. In addition, you’re not reducing your home equity at all, other than any small closing costs you may pay with this method. If you have a second mortgage or HELOC, you should strongly consider whether you might be able to refinance into a single payment for a better deal.

Cash-Out Refinance

Another common use of refinancing, one that’s often put toward a few different areas, is what’s known as the cash-out refinance. This type of refinancing involves utilizing your home’s equity to “cash out” actual funds that are paid out against the amount of equity you’ve built up over a period of months or years.

There are a few different ways you may utilize a cash-out refinance:

Debt consolidation: In some cases, you may have significant non-mortgage debt built up, such as a credit card or some other type. In these situations, you can use the cash from a cash-out refinance to pay a lump sum toward these balances and improve your debt-to-income ratio.
Borrowing money: If you need to borrow against your home equity, this is also possible. This is typically a very cost-efficient way of doing it, as mortgage rates tend to be lower than other types of debt — and are also tax-deductible.
Emergencies: Finally, if some kind of major financial emergency has arisen, you can use funds from a cash-out refinance to cover it.

Cancel Mortgage Insurance

For those under most mortgage programs, private mortgage insurance you pay to protect your lender in case of default can be cancelled once you reach 20% equity in the home. However, for FHA mortgages, this PMI remains for the life of the loan — unless, that is, you refinance it. This is another reason some people utilize refinancing, allowing them to cancel PMI and pay less overall each month.

For more on why you might consider refinancing your home, or to learn about any of our mortgage rates or home loan services, speak to the staff at Primary Residential Mortgage today.

*PRMI NMLS 3094. PRMI is an Equal Housing Lender. Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. Programs, rates, terms, and conditions are subject to change and are subject to borrower(s) qualification. This is not a commitment to lend. Opinions expressed are solely my own and do not express the views of my employer.

December 14 2021

Reasons for Mortgage Refinancing: Rate, Payment, Format, Term

chrishauman News, Refinancing

There are several programs within the mortgage world that might be utilized for varying different purposes, and mortgage refinancing is perhaps the best example. There’s not a single reason why homeowners refinance their mortgage — rather, there are several different scenarios that may lead them down these lines, each of which may have specific benefits you’re looking for.

At Primary Residential Mortgage, we’re happy to offer not only a wide range of mortgage loan programs with fantastic mortgage rates, but also refinancing services for any of our clients. What are the different reasons you might consider refinancing your mortgage? This two-part blog series will go over a number of different scenarios.

Getting a Better Mortgage Rate

Perhaps the single most common reason for refinancing a mortgage is to take advantage of a lower interest rate. When you first take your mortgage, the lender puts together a package that works for their internal model and creates a rate from it — it might be fantastic, or it might not!

When rates drop in the marketplace, refinancing can be an easy way to save money on your monthly payment and pay off your loan more quickly. In many cases, you can even get a lower interest rate than when you originally took out your mortgage!

Also, home values have increased dramatically in the last few years—as much as 25% in some areas in 2021 alone. That means homeowners have access to more equity that they can use to pay off credit card debt or to finance renovations.

Lowering Monthly Payments

Another common use of refinancing is to lower monthly payments. This might be accomplished by extending your loan term to reduce monthly payments and, as a result, increase the total amount you pay over time in interest charges. Or, it can also be done by decreasing your standard payment in order to help build equity in your home more quickly.

This might be an appropriate situation for homeowners who are looking to free up cash flow every month, or who may be in danger of defaulting on their loan if they can’t find a way to reduce their monthly payments.

Changing Rate Format

Down similar lines, you may also look to change from an adjustable-rate loan to a fixed-rate loan, or vice versa. Some homeowners have the ability to save a bit of money on their monthly payment by taking out an ARM during a period where rates are high — then, when they come back down, refinancing into a 30-year fixed mortgage can create significant savings.

Shorten Loan Term

In certain scenarios, especially if you’ve recently begun to earn more money and are looking for ways to pay your mortgage down faster to avoid as much interest as possible, refinancing to a shorter loan term may be the right choice. For homeowners who have a 30-year mortgage, refinancing into a 20-year or 15-year mortgage can shave years off of your repayment schedule and save you a large sum of money in interest charges.

For more on how mortgage refinancing is often used in varying ways to benefit the borrower, or to learn about any of our mortgage rates or refinancing services, speak to the team at Primary Residential Mortgage today.