Refinance – to finance something again usually with a new loan amount at a lower interest rate. (Oxford English Dictionary, 2022)
Things that can be refinanced are car loans, students loans, and home, or mortgage, loans. During financial uncertainty, you might consider refinancing your mortgage loan. Doing this can result in lower monthly payments so you have more money left in your pocket or a lower interest rate saving you money over time. Before jumping into refinancing, let’s look at the four benefits of refinancing your mortgage loan and why title insurance is required.
Benefits of Refinancing
Depending on your eligibility for a refinanced mortgage loan, it could benefit you in different ways. Some benefits include receiving a lower interest rate. At the time of this posting, interest rates are between 2.96% and 4.48% depending on the type of loan and the duration of the loan. You could receive a lower monthly payment. This might allow you to manage payments better or keep more money in your pocket each month. Refinancing could result in a shorter loan term. You can go from a 30-year loan and refinance to a 15-year loan. Finally, refinancing your mortgage loan can allow you to cash out any equity you have on your home and use that money for other needs.
Lower Your Monthly Payment
The most common benefit of refinancing a mortgage loan is lowered monthly payments. If you are planning to build up some savings, lower monthly payments can help keep more money in your pockets that can be contributed to a savings account. Lower monthly payments can also be a benefit if your family status changes like welcoming a new baby or you have experienced job loss or demotion. Oftentimes, refinancing allows delayed start times for payments. You may not need to make your first payment on the new mortgage loan for 60 or 90 days.
Lower Your Interest Rate
A lowered interest rate can result in paying less on your mortgage loan in the long run. The lower the rate, the less interest money it accrues. Interest rates can fluctuate from one day to the next so it is important to monitor rates and refinance when you feel you can get the best, lowest rate.
Cash Out Home Equity
Cashing out your home’s equity, or getting a cash-out refinance, will take the place of your current mortgage at a higher loan amount. It might not be obvious right away, but there is an advantage here. Your home’s value is taken into consideration and applied to the new loan amount, then you get the difference as cash at closing. NerdWallet explains this simply— if your home is valued at $200,000 and you still owe $100,000 on your mortgage you can refinance for $150,000 and receive $50,000 cash at closing that can be used for home renovations or other expenses.
Shorten Your Loan Term
In refinancing your mortgage loan, you can opt to have a shorter loan term. This allows you to pay off your loan faster but might result in a higher monthly payment depending on what you qualify for. Typically, people refinance their 30-year home loan to a 10-, 15-, or 20-year loan. This may also result in a lower monthly interest rate which we know can help you pay less over time.
Purchasing Title Insurance
Purchasing title insurance is required when taking out a mortgage loan. This is true whether it is a first-time home loan or a refinance. Many homeowners are surprised to learn this. Title insurance protects your lender, and many lenders want to ensure they are protected against any loan defects so a new title insurance policy is required. You can speak with your title insurance policy officer about possible discounts or short-term rate options when purchasing a new policy. It is also good to consider using the same title insurance company as you did with your original loan for possible discounts as a continued customer.
Ready To Refinance
Ready to start your home refinance process? Heights Title is ready to guide you for all things purchasing and refinancing. We will work with you through the title insurance process and provide the best options possible. Contact us to get a quote or order your title today.