Most homeowners with a mortgage will likely refinance their existing loan at least once over the life ot the mortgage. The reason? It's usually because rates have fallen to a level lower than what they currently have. That's the most common when homeowners start thinking of refinancing. They have a rate that's higher than what the current market is offering. Makes sense. Refinancing because rates have fallen makes complete sense. Usually, anyway.
Refinancing to get a lower rate seems like a no-brainer but there's more to it than that. It's also important to consider how long the homeowner has had the existing mortgage. For example, say someone has a traditional, 30-year fixed rate loan. Rates have fallen over the years to a level lower than what they currently have. However, if that homeowner has had the mortgage for say, seven or eight years, or even longer, it might not make sense after all. Refinancing a loan with 23 years left into another 30 year term may lower the payment but extend the loan from 23 out another 30 years.
That might not be the best approach. This is something you should speak with your loan officer about. Refinancing into a 30 year note increases the amount of interest paid over the life of the loan to the point where it's not beneficial at all but instead yields a negative effect. Lenders can also offer a loan term that matches the number of months left on the current note.
But a lower rate isn't the only reason to refinance.
Changing the term of a note might also be a motivator. If rates have fallen and someone owns a 30 year note, perhaps refinancing to a 15 year term might work better. Shorter terms have some benefits, primarily saving a significant amount of interest paid to the lender. Yes, payments might be a little higher in some instances but the advantage is the amount of interest paid and less so to the rate.
Another reason for a refinance is in the event of a couple getting divorced. Many homeowners borrow jointly to increase the amount of qualifying. But in the case of a divorce, one spouse might want to keep the home and live in it while the other moves out. But the lender isn't really concerned with your marital affairs, it just wants to be paid back per the terms of the original loan. Both parties are still responsible, regardless. Both the owner occupant and non-occupant.
The only way to get the non-occupant off the note is to refinance the existing note with the occupying individual quaifying on his or her own. In some cases, this reduction in income can mean the occupant can no longer qualify for the existing mortgage.
Refinancing to avoid a balloon payment is another reason. Balloon payments mean the loan is fixed for a few years before coming due in full. Say, five or seven years. There aren't very many of these loans left, but they're still out there.
Refinancing is a financial decision that should be made in counsel with an experienced loan officer. Even if you're just toying with the idea, speaking with a professional will help ease the transition.
