When Does It Make Sense to Refinance Your Mortgage?

Most American homeowners have a mortgage on their home. This is because most homeowners don’t have the capital available to purchase a home without financing. Instead, they must utilize a mortgage to complete the acquisition. However, what many homeowners may not know is that following their purchase, they have the option to refinance their home. In many cases, this allows them to save money and build equity quicker.

Refinancing your home is the process of switching out your existing loan (mortgage) for a new loan; the new loan pays off the debt of the existing loan. For example, let’s say you have a mortgage on your home for $300,000 at a 5% interest rate. After speaking with a lender, you discover that historically low interest rates could allow you to reduce your interest rate to 3%. To take advantage of this, you could refinance your home. The lender would give you a new loan for $300,000 (at a 3% interest rate), and you would use the capital to pay off the old loan.

Refinancing your home can prove to be beneficial for many reasons. In general, refinancing can help a homeowner build equity and save money. Click here to read on and take a look at some specific times when refinancing makes sense.

If you’ve decided that refinancing is the right choice, you can then take similar steps to the ones you took when financing your home at the time of purchase—you will need to meet with a lender, who will determine the type of loan you qualify for and how much you qualify to borrow. Then, the lender will complete the underwriting process. If they provide a better option compared to your current mortgage, you can then consider closing on the loan. For additional mortgage resources, a list of our current rates, or to set up an appointment with a Mortgage Representative, visit BCU.org/Community or reach out to your local BCU branch at 847-932-8445 | 415 S. Main Street, Crystal Lake.