Refinancing a mortgage is a frequently available option that can help you reduce your monthly payments, pay lower interest rates, or replace an adjustable-rate mortgage (ARM) with a fixed-rate (FRM) one. Some people choose to refinance to acquire sufficient cash for a home remodeling project, while others may simply wish to pay off other outstanding debts.
Recent studies demonstrate the annual amount of refinance mortgage originations (the process of securing a loan) has varied significantly over the past two decades. According to Statista, refinance mortgage originations in the United States totaled $377 billion in 2018. This marks an increase from 2000 ($234 billion) but a steep drop from both 2017 ($600 billion) and 2016 ($999 billion). The statistics for 2020 are not yet available, but with rates at historic lows, predictions are that the numbers will rise significantly.
Top Reasons to Refinance a Mortgage
Here are the top six benefits of refinancing a mortgage:
Lower Your Monthly Payments
A lower interest rate typically implies lower monthly payments, especially if your refinanced mortgage holds the same payoff date as your previous loan. Certain lenders may allow you to extend your payoff date.
Reduce the Length of Your Loan
More borrowers than you might imagine begin with a 30-year home loan and then refinance to a 15-year FRM after a couple of years in order to expedite the mortgage repayment process and save some money. In certain cases, you may even be able to reduce your term without forcing a major increase in your monthly payment.
Remove Private Mortgage Insurance
This type of insurance is intended to protect a lender from financial loss in the event that a borrower defaults on a mortgage. Generally, PMI is only incurred when a homeowner must finance more than 80% of a property’s purchase price. There are several strategies for getting rid of PMI, so don’t hesitate to seek advice from real estate experts.
Convert to a Fixed Mortgage Rate
As its name indicates, a fixed-rate mortgage (which is traditionally amortized) has a fixed interest rate for a loan’s full term, which generally implies more stability. According to the consumer mortgage resource website HSH, Freddie Mac recently reported that the average offered rate for a 30-year FRM is 3.33%. The current rate for 15-year FRM is 2.77%. Meanwhile, the initial fixed rate for a hybrid 5/1 adjustable-rate mortgage remains at 3.40% (on average).
Consolidate Credit Using a HELOC
One refinancing option to consider involves combining a second mortgage or HELOC (home equity line of credit) into one primary home loan at a lower rate. By doing this, you aren’t lowering your home equity, other than for any closing costs you may choose to include in the mortgage. With this refinancing plan, you can continue to have just one monthly payment.
ATTOM Data Solutions reported last year that there were 313,744 HELOCs originated during the third quarter of 2018, a figure that marked an 11% decrease from 2017. Increasing interest rates are believed to be part of the reason behind this trend. Taking out a HELOC or other home equity loan can also give you a tax break, as long as you clearly indicate this on your return.
Use Home Equity for Cash
A regular cash-out refinance is a cost-efficient option that involves borrowing money against your home equity in order to receive money for any purpose. At closing, you should receive a check for the amount added to the loan’s principal you owe.
Speak to the Refinancing Specialists
Reach out to the professionals at Mathis Title Company in Fairfax, Virginia to learn more about the advantages of refinancing a mortgage. We serve multiple locations near Fairfax, including Alexandria, Arlington, Centreville, Vienna and McLean. Mathis Title’s team is committed to offering you personalized assistance with many aspects of the home buying process, including the different refinance options you can choose from. Our other services include contract preparation (purchase agreement) and review, mechanics lien and agent services, settlement and closing, and title insurance. We will always work hand in hand with mortgage lenders throughout the entire process.
Robin Mathis is an attorney with more than 35 years of experience while Ann Andreatos with over 20 years is a prolific title agent who has a great eye for spotting details on documents. Call Mathis Title Company today at (703) 214-4020 or contact us online for more information about our services. You’ll hardly find a more reliable real estate organization in your area!