To Refinance Your Mortgage or Not to

When mortgage rates fall to record lows—as they have in recent months—everyone starts talking about refinancing. When those low rates begin to climb a little—also as they have done, even more recently—many people who had been considering refinancing decide to go for it, before the rates climb any higher.

refinance photo
Photo by GotCredit

But here’s the thing: Many Americans know they should consider refinancing to take advantage of low rates, but they don’t actually know what it is exactly, or how it works. And if you’re going to refinance your mortgage, you should know a little something about it.

Refinancing 101

Think of refinancing as trading in your current mortgage for a shiny new one. When rates are lower than your current rate, you can swap your mortgage for one with lower interest.

You can either trade that current mortgage for a new one with the same lender, or go with a different lender. Either way, the lender of your new loan will pay off your old one, leaving you with a new loan, new terms, and possibly new lender. Most importantly, use a trusted mortgage broker who can help you shop around and find the best new option for you.

Should You Refinance?

While the short answer is yes, if the current rates are much lower than what you’re paying, there are some people for whom a refinance isn’t right. Consult with a mortgage broker and find out all of the details, and do a side-by-side comparison. If you don’t want to refinance, but you do want to take advantage of the equity in your home, you can take out a second mortgage in the form of a home equity line of credit, giving you access to cash when you need it.

Refinancing Options

If you do decide to refinance, you’ll be faced with options; typically there are two types of refinancing: Rate and term refinancing and cash-out refinancing. Rate and term is the basic trading of your mortgage for a new one, without adding to the loan amount. In the end, you get a lower rate for a shorter term—hence the name rate and term refinance.

On the other hand, cash-out refinancing is done when borrowers want to get cash (again, hence the name). By trading for a larger loan amount, and often by using their existing home equity, homeowners get cash in their pocket to use as needed, but are left with a larger amount of money to pay back.

Of course the best option is the one that suits your specific needs. Whichever you choose, you’ll find that now continues to be a good time to refinance if you’re considering it. Rates are still low, but might not stay that way, so if you’re sure you’d like to go the refinance route, do so before interest rates increase any more.

If you’re buying or selling a home in the Boston area and are in need of a mortgage, or have any mortgage-related questions, contact me at any time for advice or help.

Phil Ganz (354 Posts)

Philip D. Ganz is a Boston Mortgage Broker and Boston Home Loan specialist. For information, expertise, consulting, or advice about home loans, refinancing mortgages, or commercial property loans, contact Phil with no obligation: 617-529-9317

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