Should I Refinance My Mortgage?
A home refinance or a mortgage refinance is when a homeowner refinances their mortgage to a new loan (typically at a lower interest rate). If your current interest rate is higher than today’s rates, you could benefit from refinancing. However, if current mortgage rates are higher than the rate you have now, it’s best not to refinance because you wouldn’t want to lose a great low rate.
Refinancing is a good idea if you get a lower interest rate and save hundreds of dollars each month.
Homeowners who need some extra cash for home renovations or to pay-off debt may be eligible for a cash-out refinance that provides a lump-sum of money at closing.
At the Credit Union of Southern California (CU SoCal) our home financing specialists can compare your existing mortgage interest rate and term with today’s rate and term options to help you decide if it is good to refinance your home.
Call 866.287.6225 today to schedule a no-obligation consultation and learn about our mortgage options, home equity lines of credit, auto loans, personal loans, checking and savings accounts, and other banking products. As a full-service financial institution, we look forward to helping you with all of your banking needs.
In this article, we’ll discuss everything there is to know about home refinancing, how it works, and more.
Get Started on Your Mortage Refinance
What Is a Mortgage Refinance?
In a refinance, a homeowner or property owner takes out a new mortgage to pay-off their existing mortgage. The best time to refinance a home is when you can secure a lower interest rate than you have now.
Top Reasons for Refinancing
Common reason to refinance include taking advantage of a new lower interest rate, getting cash-out at closing, or taking someone off the original mortgage (in the case of a divorce, for example.) Getting cash-out along with the refinance is called a cash-out refinance. There are
pros and cons of a cash-out refinance.
Benefits of Doing a Refinance or a Cash-out Refinance:
Lower Interest Rate. You may get a lower interest rate than you have now. If you take cash-out as part of the new mortgage, you will pay it back as part of your regular monthly mortgage payments. If you choose an adjustable rate mortgage or a fixed rate mortgage, the interest paid will reflect the terms of the chosen loan type.
Shorter Loan Term. In a regular refinance many homeowners choose a shorter loan term (length of loan). For example, if you get a lower interest rate you may choose a 15- or 20-year mortgage, rather than a 30-year, which means you can pay off your mortgage sooner.
Pay Off Debts. Using a cash-out refinance to pay off high-interest credit card debt or student loans is a financially smart reason to refinance.
Make Home Improvements and Renovations. One of the best uses of a cash-out refinance is to reinvest the money in your home by replacing the roof or windows, or updating the kitchen and bathrooms.
Switch From an Adjustable Rate Mortgage (ARM) To a Fixed Rate Mortgage. An ARM may start with a low fixed or variable rate, but it will adjust to a higher rate. Homeowners with an ARM should consider refinancing to a fixed-rate mortgage before the ARM adjusts to the higher rate.
Remove Private mortgage insurance (PMI). If you purchased your home using a mortgage loan and made a down payment of less than 20%, you are likely paying PMI as part of your monthly mortgage payment. PMI is charged by lenders to cover their expenses if a borrower defaults on the loan. If it’s been a couple of years since you bought your home you can ask your lender to run the numbers to see if you now have 20% equity in the home, and thus can eliminate PMI. Refinancing just to get rid of PMI may cost you more in closing costs. You can build equity in your home by making extra payments toward the principal loan balance.
When is The Best Time to Refinance
Refinancing isn’t a one-size-fits-all endeavor. Here are some examples of when it is worth it to refinance a mortgage:
- Your Credit Score Improves. To get approved for a loan the lender will look at your credit score. If you have been turned down for a refinance because of bad credit, an rebuilding and improving your credit score can help you qualify.
- Interest Rates Are Low. Getting a new lower interest rate can save you hundreds of dollars each month.
- You Plan on Staying In Your Home. Refinancing a mortgage requires that closing costs be paid, just as when you got your current mortgage. It may not be worth paying closing costs, even to get a lower interest rate, if you don’t plan on staying in your home for at least a few years after.
The best time to refinance a home is when you can get a lower rate than you have now.
How to Decide if Refinancing is Right For You
- Are interest rates lower than your current rate?
- Will you be keeping the home for several years?
- Do you have a steady income and low debt?
- Is your credit score good (at least 580 or better)?
If you can answer “yes” to these questions it may be a good time to refinance your home!
Use this
Mortgage Refinance Savings Calculator to see how much you can save.
How to Refinance Your Mortgage
- Start by contacting your current lender to get current interest rates.
- Know how much you still owe on your current mortgage to see what loan amount you’ll need.
- Decide if you can benefit from doing a cash-out refinance.
- Check your credit score for free. You're entitled to one free copy of your credit report every 12 months from each of the three nationwide credit reporting companies. Order online from annualcreditreport.com, the only authorized website for free credit reports, or call 1-877-322-8228. You will need to provide your name, address, social security number, and date of birth to verify your identity.
- Make sure you have your documents ready to provide to the lender, including proof of income, bank statements, debts, and W-2 or 1099s.
- Talk to a CU SoCal mortgage loan specialist. Even if your credit history isn’t perfect, don’t worry, because unlike a traditional bank, we don’t think that your credit score tells the whole the story. Come in and talk to us and let’s see what we can do!
Alternatives to Home Refinancing
If you’re a homeowner who needs cash to pay off high-interest debt, such as credit cards or student loans, or need a loan to pay for home renovations, there are other ways to get the cash you need.
Home Equity Loan. A home equity loan lets you borrow money from the bank against the equity of your home. The amount is determined by the difference between your house’s market value and the remaining mortgage credit. If approved, you will receive a lump-sum of money and you will be required to start making monthly repayments starting the month after you receive the funds.
Home Equity Line of Credit (HELOC). A
HELOC is a type of “revolving” credit that has a credit limit, a variable interest rate, and is secured by the equity in your home. Most HELOCs have a 10-year “draw period” during which money can be borrowed and you can use as much or as little of the total loan amount as you like. You will only pay interest on the amount you have used, not the full amount of the loan.
CU SoCal Mortgages and Home Loans
Ready to refinance your mortgage? CU SoCal can make it happen with:
- Competitive rates
- Flat lender fees as low as $995.
- Financing up to $3 million.
- Flexible terms of 10-, 15-, 20-, and 30-years.
- Fast financing.
- Professional guidance.
- A 5/5 ARM hybrid mortgage to help you build equity faster.
Why Savvy Consumers Choose CU SoCal
For over 60 years CU SoCal has been providing financial services, including mortgages, Home Equity Loans, HELOCs, car loans, personal loans, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation loan consultation with a CU SoCal Member Services specialist.
Get Started on Your Mortage Refinance