Last updated: February 12, 2018

Refinancing: What It Is and Why to Do It

You’ve likely seen a lot about mortgage refinancing. It’s often in the news and on the web because it’s a common financial move that can help homeowners in a variety of ways. But what is refinancing, exactly, and what are the reasons to consider it?

What Is Refinancing?

Refinancing is the process of replacing your current home loan with another one. In essence, you pay off the old mortgage with the money from the new one.

Basically, there are three types of refinance mortgages:

  • In a rate-and-term refinance, the only changes are to the mortgage rate and/or the length of the mortgage term.
  • In a cash-in refinance, the homeowner pays some cash at closing, lowering their mortgage balance and amount owed.
  • In a cash-out refinance, the homeowner is paid the difference between the smaller old loan and the larger new.

And refinancing isn’t reserved for homeowners with only the very best credit scores. Bad or bruised credit mortgage refinancing is also available from financial institutions and lenders like Pacific Union.

Why Should I Consider Refinancing?

Now that you know the what of refinancing, it’s time to look at the whys. And there are a lot of ‘em. Starting with the fact that your equity is exactly that – yours.

What’s equity? It’s the asset you’re building as you pay off your mortgage. If you subtract the amount still owed on your mortgage from the value of your property, that’s a pretty good gauge of your equity. Think of it as the amount of your home you’ve already paid off.

Cash-out refinancing allows you to use that equity for all sorts of things.

Debt consolidation: If you have high interest payments that are bogging you down, the equity in your home could be the solution.

College tuition: Got a kid leaving the nest? Going back to school yourself? Cash-out refinance can help fund an education.

Home remodel: Put that equity back to work for you and remodel your kitchen or bath. Improve your life and your property’s value.

Special purchase: Have you been craving a vacation to bring the family together or a tricked-out motorcycle? Your equity to the rescue.

Now, since you’ve already been through the process of getting a mortgage, you know the basics. Gather your documents. Work with a loan officer. Fill out an application.If you qualify for a “Streamline” Refinance product, you could even save some steps. Both the FHA and the VA have streamline refinance options, but only you and a licensed loan officer can determine what makes the most sense for your financial situation.

Speaking of Steps, What’s Next?

The first step, of course, is getting in touch with a loan officer you can trust. If you need a hand with that, we know a few we’d be happy to recommend.