Is Mortgage Refinancing the Right Choice?

A refinanced mortgage is not the same as a reverse mortgage. A refinanced mortgage allows you to borrow a large amount of money and repay it by making monthly payments over the term of the loan so that the balance shrinks and the amount of equity gets larger. On the other hand, a reverse mortgage enables you to borrow small amounts of money over time, thereby increasing the balance and making the amount of equity in your home become smaller. With a reverse mortgage, you can repay the loan through either proceeds from the sale of the home or other resources, but not everyone is eligible for a reverse mortgage. Refinancing, too, may be subject to special conditions such as at least 10% equity.

There are two options for refinancing your current mortgage. You can choose a rate-term refinance, which will give you just enough money to pay off the balance of your existing mortgage while also providing you a reduced interest rate, adjusted loan term, or both. Or, you can choose a cash-out refinance, which allows you to pay off the current mortgage balance and convert some of your home equity into cash. This can be used for paying medical expenses, investing in a new company, making home repairs, buying a new car, or even sending your children to college.

How do you know when it’s time to refinance? If interest rates are between 1/2% and 5/8% lower than your current interest rate, you should consider refinancing. Mortgage rates fluctuate over time, so keep your eye on them to determine if you may be able to save money. Using a refinance calculator such as the one provided by Home Mortgage HQ will also help you figure out if the time to refinance is now.