Reasons for Refinancing

Home owners refinance for various reasons:

• Lower monthly payment - One of the main reasons to refinance is to take advantage of lower interest rates, which can reduce your monthly payment.
   
• Change repayment term - Some home owners refinance at a shorter term with a lower interest rate without a large change in their monthly payment. They pay off their loan faster.
   
• Build up equity - Many home owners want to build the equity in their homes more quickly and choose to refinance with a shorter term mortgage. With shorter term loans, more of each monthly payment goes to the principal.
   
• Consolidate debt - Through what is often called a Cash Out Refinance, you can use the equity that you have in your home to pay for expenses such as home improvements or college tuition, or consolidate your higher-interest loans.
   
• Change loan types - When interest rates are higher home owners often choose adjustable-rate mortgages (ARMs), which usually offer lower interest rates during the early years of the loan. When rates come down, they may want to refinance to a fixed-rate loan to know what the mortgage payment will be for the life of the loan.

Before you decide if and when to refinance your mortgage, you should consider:

• the interest rate of the existing mortgage
• the interest rate of the new mortgage
• the cost of refinancing
• how long you plan to stay in your home
• how much equity you have built up in your home
• your current income and credit status

If you can lower your mortgage interest rate by at least one percentage point, refinancing may be a good deal. As mortgage rates go lower, this rule of thumb may become less meaningful. Other factors also ultimately affect your decision, such as how long you plan to live in the home.

Your credit union can help you determine if refinancing makes sense for you. We have online calculators available to assist you in your decision. If you have any questions or if we can help you in any way, please contact us.

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