Refinancing an FHA home loan
is the process of getting a new, replacement mortgage. Borrowers try refinancing their mortgages in order to get a lower interest rate, borrow cash against home equity, or to move to a different mortgage provider.
There are many advantages to refinancing your home loan…
… As well as some disadvantages.
- Many refinances lead to lower interest rates and monthly payments.
- You could avoid rising interest rates by going from an adjustable rate mortgage to a fixed rate mortgage.
- There is refinance option that allows you to consolidate debt into a single home loan, which gives you a better interest rate than credit cards or personal loans.
- You might be able to extend or shorten the term of your loan, according to your needs.
- The closing costs and refinance fees can be significant; it may cost the same or more than when you got your first mortgage.
- The interest rate may rise, going from a fixed to an adjustable rate mortgage.
- Taking out another loan on your home equity puts you in greater debt.
- By taking a cash out you would be lowering the equity, which may lead to you having to pay private mortgage insurance on your home.
Refinancing your home loan involves the same process and work as your first mortgage, so it’s important to know that it will pay off. Will you be able to afford the refinance fees and costs? Will the lower interest rate make up for those out-of-pocket payments? If you’re taking out cash against equity, what are you using the cash for? Take the time to see what a different lender could offer you. Make sure the refinance is the best decision for you, by asking yourself these questions.