Mortgage refinance involves replacing an existing mortgage with a new mortgage. Typically, homeowners refinance their mortgages to achieve a number of goals. Refinancing a mortgage is an opportunity to get a new loan with better interest rate, to get cash out, to consolidate debt, to change the terms of the mortgage, and more.

Mortgage Refinance: The Basics

When you refinance a mortgage, you.re getting a new loan to replace your current one. Depending on your goals, there are two basic types of mortgage refinance: Cash-out refinance allows you to get cash from equity. Terms/rate refinance is for you if your main goal is to change the rate, terms, or the type of mortgage. If you.re considering refinancing your mortgage, you may want to start by determining what you want to accomplish first.

Reasons to Refinance

• Lower your interest rate - In the financial marketplace, interest rates are constantly changing. Some homeowners find themselves with a mortgage rate that's higher than current interest rates. Refinancing to lower the interest rate on a mortgage is one of the popular reasons to refinance¹. However, if you.re planning on refinancing your mortgage to lower your rate, you may want to calculate the break-even point on the new loan. That.s because closing costs are part of refinancing. And depending on the new interest rate and how long you plan to stay in your current home or mortgage, the amount you pay in closing costs may not be worth the interest-rate savings on your new loan.
• Get cash out of available equity - Cash-out refinance is another popular choice with homeowners. It involves replacing an existing mortgage with a new mortgage for more money than is owed on the current mortgage, and getting cash back for the difference. For example, if a house is worth $200,000 and the balance on its mortgage is $100,000, a homeowner could potentially refinance for up to $150,000 and get $50,000 in cash back from available equity.
• Consolidate high interest debt - Debt consolidation is another reason homeowners refinance. To consolidate debt, homeowners may choose a cash-out refinance and use cash from home equity to pay off debt². This plan works for many people, because mortgage loans typically offer lower interest rates than personal loans or many other types of credit. And the interest paid on a mortgage is typically tax deductible (check with your tax advisor for details).
• Change mortgage terms from 30 years to 15 - Improved financial circumstances lead some homeowners to want to refinance to mortgages with shorter terms. While the monthly payments for a 15-year mortgage may be higher, they do allow homeowners to build equity faster and can help homeowners save thousands of dollars in interest over the life of the loan³.
• Move from an adjustable-rate (ARM) to fixed-rate mortgage - Maybe your financial goals have changed, and a fixed rate mortgage makes better sense. Perhaps you want the stability of a fixed rate with interest and payments that won.t change. Refinancing your mortgage can be a great way to change your rate to better suit your current financial situation and future goals.

Advantages of Mortgage Refinance

For many homeowners, mortgage refinance makes good financial sense. These are some of the key advantages of mortgage refinance.

Mortgage refinance can

• Lower the interest rate on your current mortgage¹
• Change the terms of your mortgage
• Potentially save on interest payments on high-interest credit card and personal debt²
• Give homeowners cash for any reason if they have available home equity

Disadvantages of Mortgage Refinance

While refinancing your mortgage can potentially lower the interest rate on your loan, lower overall monthly payments, or change your mortgage terms altogether, it has some disadvantages.

• Depending on how long you plan to stay in your home or mortgage and the closing costs involved in refinancing, the interest rate savings might not offset the cost of obtaining the new loan. So before you decide to refinance your current mortgage, make sure the numbers add up. Depending on your particular situation, the type of refinance loan you choose, and the interest rate on the loan, you may end up paying more in interest payments over the course of the loan.
• If debt consolidation is one of the reasons for a cash-out refinance loan, be careful not to overextend yourself financially. Refinancing may increase the total number of monthly payments and the total amount paid. Don.t consolidate your debt and continue to overspend.

Disclosures

1. Refinancing or taking out a home equity line of credit may increase the total number of monthly payments and/or the total amount paid when compared to your current situation.

2. The relative benefits of a consolidation loan may vary over time and will depend on individual circumstances. The longer the property and loan at a new lower rate and term are kept, the more interest savings can be realized when compared to your current situation. The repayment period of a mortgage loan can generally be shortened when additional funds above scheduled monthly mortgage payments are consistently paid and applied to reduce the loan balance.

3. The relative benefits of these alternatives may vary over time and will depend on individual circumstances. The longer you keep the property and your loan at the new rate and term, the more interest savings may be realized when compared to your current situation.