REFINANCING

What is Refinancing?

Getting a new mortgage to replace the original is called refinancing. The first loan is paid off, allowing the second loan to be created in an effort to reduce monthly payments, lower your interest rates, take cash out of your home for large purchases, or change mortgage companies. Most people refinance when they have equity on their home, which is the difference between the amount owed to the mortgage company and the worth of the home.

What are the Advantages of Refinancing?

LOWER INTEREST
One of the main advantages of refinancing regardless of equity is reducing an interest rate. Often, as people work through their careers and continue to make more money they are able to pay all their bills on time and thus increase their credit score. With this increase in credit comes the ability to procure loans at lower rates, and therefore many people refinance with their mortgage companies for this reason. A lower interest rate can have a profound effect on monthly payments, potentially saving you hundreds of dollars a year.

CASH-OUT
Second, many people refinance in order to obtain money for large purchases such as cars or to reduce credit card debt. The way they do this is by refinancing for the purpose of taking equity out of the home. The equity of your house is calculated as follows. First, the home is appraised. Second, the lender determines how much of a percentage of that appraisal they are willing to loan. Finally, the balance owed on the original mortgage is subtracted. After that money is used to pay off the original mortgage, the remaining balance is loaned to the homeowner. Many people improve upon the condition of a home after they buy it. As such, they increase the value of the home. By doing so while making payments on a mortgage, these people are able to take out substantial cash-out as the difference between the appraised value of their home increases and the balance owed on a mortgage decreases.

ALL REFINANCING IS NOT EQUAL
Refinancing a home mortgage has its own set of subtleties that can make a big difference in how well the process goes — and what your monthly payment will be. Trust the loan officers at Ark Mortgage to walk you through the process, and get you the best possible refinance package.

For more info, take a look this recent article in Time magazine on refinancing: http://time.com/money/3709982/when-refinance-mortgage/