1. To reduce your interest rate monthly mortgage payments.

  • Getting a lower interest than you currently have can reduce your monthly mortgage payments and save you thousands over the life of the loan.
  • Be mindful of closing costs. Always do a break-even analysis to justify the cost associated with the savings.
    • For example, if you save $250/month by refinance, but are adding $3,500 to your loan in closing costs is it worth it?
    • It would take you 14 months to get your money back ($3,500/$250). So, if you think you will keep the loan for more than 14 months, then yes, it is worth it and makes sense.
  • Also, be mindful of restarting your term (re-amortizing).
    • For example, if you have a 30-yr fix and have been making payments for 10 years and only have 20 years left, does it make sense to go back to a 30-yr payoff period for a lower interest rate?
    • Depends on your goals and the difference in the interest you can get today and the rate you have. If your goal is to get the lowest possible monthly payment on a fixed rate mortgage, then yes it makes sense. However, if your goal is to get the loan paid off by paying the lowest interest rate a few more calculations are required that a licensed Loan Officer at 1st Rate is happy to do for you.

2. Change the term of your mortgage.

  • Get out of an ARM (adjustable rate mortgage) and into a fixed rate mortgage.
  • Reduce the term of your loan so you can have the loan paid off quicker, in combination of getting a lower interest rate than you currently have.
  • Increase the term of your loan so you can have a lower monthly payment, even though it adds years to your payoff date, this strategy can help the borrower lower his monthly outflow.

3. Cashing out Equity

  • When you do this type of transaction, your new loan is always higher than your current payoff. This is a great way to use some of your equity to payoff high interest debt, consolidate debt, do home improvements, etc.
  • Benefits of using equity to payoff a car loan or other debts:
    1. Lower monthly outflow of payments.
    2. Interest on your mortgage is generally tax deductible.
  • Interest rate available on a mortgage loan is generally lower than interest on other debts.
  • Negative results of using equity to payoff car loan or other debts:
    1. Increasing the time it takes to pay off the debt.
    2. Closing costs associated with the refinance.
  • Restarting the amortization schedule on the mortgage. If you have paid on the loan for 5 years and are going back to a 30-yr schedule, you have restarted the clock on the payoff period.