Buying a home has long been considered a cornerstone of the American dream. Whether it’s your first, or one of many, getting a home loan to purchase a home is one of the most significant financial decisions you’ll make in your life.
The first step in deciding whether you should refinance is to establish your goals. The most common reasons for refinancing a mortgage are to take cash out, get a lower payment, or shorten your mortgage term.
Here are some common situations that often apply to people getting their first home loan, and possible options. You may qualify for more than one; we’ll help you find what’s best for you.
- Want payment and interest rate stability? With a 30-Year Fixed, your interest rate and monthly payments (before taxes and insurance) won’t change, and you can buy a home with as little as 3% down.
- Don’t have a lot of credit history, or worried it’s not good enough? FHA loans have more lenient credit and income requirements, and your down payment can be as low as 3.5%.
- Think you’ll only be in a starter home for a few years? An adjustable-rate mortgage gives you a low fixed interest rate – which means lower monthly payments – for the first few years of your mortgage.
- Are you a veteran or currently serving? You may qualify for a VA Loan and be able to buy a home with zero down.
Common Reasons to Refinance
A Lower Interest Rate
The higher your interest rate, the more you’ll pay for your mortgage both now and in the future. A lower rate equals a lower payment if you don’t shorten the length of your mortgage term.
REMOVE PRIVATE MORTGAGE INSURANCE (PMI)
If you put less than 20% down on your original home loan, chances are you’re paying private mortgage insurance (PMI). If your home has increased in value and/or you have enough equity, you can refinance to eliminate this costly monthly payment.
Change Your Loan Term
You can refinance your loan into either a longer term or a shorter term. A shorter term would allow you to pay off your loan quicker but possibly have a higher monthly payment. A longer term would extend the life of your loan but may have a smaller monthly payment.
Consolidate your debt
Make one low monthly payment instead of several, and pay less overall every month. Unlike credit card interest, the interest on your mortgage is usually tax-deductible.*
Use your home equity to your advantage! Get money out of your home and use it for anything you want. Make home improvements to increase the value of your home, pay for college tuition, pay off high-interest credit card debt, or buy a vacation home.