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Refinancing your home: the benefits, pros and cons

Are you considering refinancing your home loan while 30-year fixed-rate mortgages are at historic lows? You’re not alone; many homeowners are taking advantage of current rates. According to the Mortgage Bankers Association, refinance volume has nearly doubled from the same time period last year.1

Even if your current home loan payments are affordable, there are many reasons to choose to refinance. Whether you need cash to pay essential expenses or would like to reduce your monthly payments, your decision should be based on what’s best for your financial situation. Learn the benefits, pros and cons to figure out whether refinancing a home is the right move for you.

What is refinancing a home?

Refinancing a mortgage involves taking out a new loan, typically with better terms, to pay off an existing loan. Would you benefit from one of these seven common reasons for refinancing a home loan?

  1. Take advantage of lower interest rates

    Have interest rates dropped since your first mortgage? By taking advantage of the benefit of lower interest rates, even a small rate reduction could mean saving money over the life of your loan. Especially if you plan on staying in your home for the long term.*

  2. Provide spare cash

    By choosing a cash-out refinance, you’ll have access to cash by removing a portion of your home’s equity without selling. This additional money can be used as you see fit, which can be a big pro. However, reducing your equity can also be a con because it takes time to rebuild it.

  3. Benefit from an improved credit score

    Even if you haven’t owned your home for long, if your credit score has improved recently, you might be eligible for a more favorable interest rate.

  4. Adjust the loan term or switch mortgage types

    With a refinance, you can switch from a 15-year to a 30-year conventional loan to lower your monthly payments or vice-versa to pay off a loan faster. In times of economic uncertainty, you may also benefit from switching from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage loan to lock in a lower rate for the remaining life of the loan.

  5. Get rid of private mortgage insurance (PMI)

    If you have at least 20% equity in the home, you may qualify to refinance without mortgage insurance. Removing PMI can save you money each month.

  6. Consolidate your debts

    Are you overloaded by high-interest debt on your credit cards or car loans? You may be able to consolidate all your debt into your mortgage payment. Mortgage loans typically carry a significantly lower interest rate than consumer debt, such as credit card debt. Refinancing can help in decreasing debt more quickly. There are many rules about ratios of a loan amount to home value, consult your loan advisor to see if you qualify.

  7. Finance home improvements

    Are you looking to add an extra bathroom or build a “granny flat” for a family member? By refinancing you can fund essential upgrades and home renovations.

How does refinancing a home work?

No two customers or loans are the same. Consult with a qualified mortgage professional to discuss the refinance advantages for your specific situation. Want to do some research first? Check out the Guild Mortgage refinance calculator to see how much it could change your monthly payment.

You’ll need to gather some of the same documents that you provided during your first mortgage loan, for example, proof of income and documentation of all debts. Upon submitting your application, your lender will review your credit history. An appraisal will also be ordered by your lender to verify the value and equity of the property. Don’t be surprised if your new mortgage carries most of the same fees as your initial purchase mortgage, like the appraisal fee and other loan closing costs.

At Guild Mortgage, we’re committed to offering our customers personalized digital mortgage options. Guild’s eClose option enables customers to sign most loan documents digitally, limiting personal contact and keeping people safe. Are you ready to refinance your mortgage?

1 Mortgage Applications Increase in Latest MBA Weekly Survey – Mortgage Bankers Association

The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply.

*By refinancing an existing loan to reduce monthly payments, a consumer’s total finance charges may be higher over the life of the loan.

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About the Author: Guild Mortgage

Founded in 1960 when the modern U.S. mortgage industry was just forming, Guild Mortgage Company is a nationally recognized independent mortgage lender providing residential mortgage products and local in-house origination and servicing. Guild’s collaborative culture and commitment to diversity and inclusion enable it to deliver a personalized experience for each customer. With more than 4,000 employees and over 250 retail branches, Guild has relationships with credit unions, community banks, and other financial institutions and services loans in 49 states and the District of Columbia. Guild’s highly trained loan professionals are experienced in government-sponsored programs such as FHA, VA, USDA, down payment assistance programs and other specialized loan programs. Guild Mortgage Company is a wholly owned subsidiary of Guild Holdings Company, whose shares of Class A common stock trade on the New York Stock Exchange under the symbol GHLD.