When it comes to refinancing your mortgage, there are several interesting options available. Cash-out, fixed-rate, and adjustable refinancing all come with unique benefits, however, rate and term refinance is an option more homeowners are turning to.
Rate and term refinance allows you to refinance your current mortgage when you want to change the interest rate or term without advancing new money on the mortgage- which is a huge benefit for many homeowners.
Rate and term refinancing is a popular option because it carries lower interest rates than even cash-out refinancing. Homeowners usually choose to take out a rate and term refinance loan when they’re focused on reducing the payment on their current mortgage or they’re ready to handle a shorter term and pay their home loan off faster in the process.
Benefits of Rate and Term Refinance
There are several good reasons to consider rate and term refinancing when looking at your mortgage. If interest rates have dropped significantly since your original mortgage loan, you can refinance and get a better rate to help you save money on your monthly loan.
Or, if you have a 15-year fixed-rate mortgage but you’re looking for lower monthly payments, rate and term refinancing can be used to turn your loan into a 30-year fixed-rate mortgage. This will help you achieve lower payments.
You can also use rate and term refinancing in the opposite scenario. Looking to build equity more quickly? Rate and term refinancing allows you to change your 30-year fixed loan to a 15-year loan so your house is paid off much sooner. However, this will result in a higher monthly payment. The good news is more of your monthly payment will go to principal rather than interest.
Another option, if interest rates have dropped, is to use rate and term refinancing to refinance the balance left on your original mortgage, let’s say it’s a 30-year mortgage, for a new 30-year mortgage. Now the new loan has lower monthly payments than your original 30-year loan’s interest rates when you signed up for it. This would add more years to what you already paid off, but if you’re looking for lower interest rates, it becomes a beneficial option.
Whether you’re using rate and term refinance to secure a better interest rate or change the terms of the mortgage, it’s important to know the principal balance remains the same.
Rate and Term Refinance vs. Cash-Out Refinance
If you’ve heard of rate and term refinance, then you’ve probably heard of cash-out refinance. Rate and term refinance and cash-out refinance are two of the most popular choices when it comes to refinancing your mortgage, yet they’re both very different.
As we learned, rate and term refinance allows you to refinance your existing loan to either change the terms or get a lower interest rate. Cash-out refinance lets you extract some of the equity from your house to help you in such cases as paying off debt. With a cash-out loan, the new mortgage is bigger than the original mortgage since you’re taking a cash advance.
Cash-out loans also generally come with more strict terms, such as a higher interest rate, because they carry a higher risk for the lender. Cash-out loans, unlike rate and term refinance loans, are going to cost you if you want back some of the equity you’ve built up in your home in the form of cash. This depends on your credit score and how much equity you have in your home.
It’s important to look at your options and choose a refinancing loan that will help you not only now but in the future.
At BrightPath, we’re approved to offer a variety of mortgage loans. We know refinancing your loan is a huge decision, that’s why we’re here to help you make the right decision on which refinancing option works best for you.
Call us today at 888-222-6003 or visit our website to learn more about rate and term refinance and other popular mortgage options.