Refinancing Basics

Mortgage
Refinancing Basics

Published: November, 2019

If you plan to live in your current home for a significant period of time, refinancing may be for you. Find out how you can pay off your current home loan and potentially take out a new loan with more favorable terms.

BENEFITS OF REFINANCING

  • Lower Interest Rates, Increased Cash Flow: If your current loan is a fixed-rate mortgage and interest rates have dropped, refinancing may result in a significantly lower monthly payment. A lower monthly payment will allow you to have more available funds to use as you please.
  • Reduce Your Monthly Mortgage Payment: Refinancing can help you increase the term of your loan, which can lower your monthly payment. Note that by increasing your mortgage term, you will pay more in interest over the life of the loan.
  • Build Home Equity Faster: If you can afford a higher payment since receiving your current loan, you may want to consider refinancing to lower the term of the loan. While your payment will be higher, you will be building home equity faster. You will also pay less in interest over the life of the loan.
  • Turn Equity into Cash: Through a cash-out refinance, you are able to take out a new mortgage with a greater principal, which allows you to turn some of your home’s equity into cash.
  • Select a More Suitable Mortgage Option: As time goes by, your needs and wants may change. By refinancing, you have the ability to select a new mortgage option with new rates and terms better suited for your current phase in life.
  • Choose a New Lender: When refinancing, you do not have to stay with the lender that provided your original mortgage. Instead, you have the option of shopping around for the best mortgage rate and fees. When you contact different lending institutions, make sure to ask for an Annual Percentage Rate (APR). The APR allows you to see the true cost of borrowing and helps you compare one lender versus another.

CONSIDERATIONS BEFORE REFINANCING

  • Length of Time in Home: Refinancing usually does not result in immediate savings. Typically, the longer you stay in your home, the more sense it makes to refinance.
  • Pre-payment Penalty: A pre-payment penalty is charged if you pay off your loan before a certain point in the term. This penalty does not apply to all home loans; therefore, before refinancing, you should consult your lending institution to see if it applies to your current mortgage.
  • Cost of Refinancing: You will have to pay the associated costs for the new refinanced mortgage, just as you did when you received your current mortgage. Some costs that may apply include: origination, home appraisal, and mortgage insurance fees.
  • Break-even Point: The break-even point is the point when your savings from the refinanced loan equals the cost of obtaining the new loan. Ideally, you want the savings to be higher than the cost to make the refinance worthwhile.
  • Reduction in Tax Savings: When refinancing to lower your interest rate, you will have a lower annual interest amount to deduct from your taxes. This might result in a decrease of total savings from the refinance. Be sure to consult your tax advisor.
  • Components that Affect the Loan Approval: Your income will be verified to ensure it is sufficient to support your monthly payment, as well as the amount of funds you have available for paying the closing costs. Your credit score and history will be reviewed to determine how you handle credit to ensure that you can balance the new mortgage payment with other financial obligations. Learn more about your credit score. A home appraisal of the house you would like to refinance may be required. The home appraisal shows the market value of the house.

PREPARE FOR REFINANCING

Ameris Bank wants to make the refinancing application process as convenient as possible.

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