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Most people don’t realize what an important financial step refinancing is. Circumstances change, and mortgages should too. If you’re wondering whether or not you’re a good candidate, here are some of the top reasons why refinancing could be right for you:

  • Your mortgage interest rate is higher than the current market interest rate.
  • You have other debt you need to reduce.
  • You’re planning to stay in your home for several years.
  • You want to make home improvements.
  • You want to pay off your mortgage sooner.
  • You have college tuition to pay.
  • You have an adjustable rate mortgage and you want to lock in a fixed rate.
  • Your credit score has improved.

Whether you’re looking to get a better interest rate or take equity out of your home for renovations, we’ve put together a step-by-step guide on why you should refinance and how to do it.

Why Refinance?

Your life changes, and your mortgage should change with it. Whether you’re moving, staying put, have a lot of expenses, or experience a change in finances, making sure your home loan is keeping up with you is of the utmost importance. Here are the most common reasons homeowners choose to refinance.

Your Mortgage Interest Rate Is Higher
than the Current Market Interest Rate

Even a small reduction in your interest rate could save you a lot of money in the long run. A refinance can help you ensure you’re getting the lowest interest rate possible. The result? More money in your pocket, for you and your family.

You’re Planning to Stay in Your Home
for Several Years

There’s no better time than right now to evaluate the type of home loan you have. When you know you’re going
to stay put for several years, refinancing is a great step toward setting long-term goals.

You Want to Pay O Your Mortgage Sooner

When rates fall, you could refinance to a lower rate and a shorter term, helping you pay o your mortgage sooner.

You Have an Adjustable Rate Mortgage and You Want to Lock In a Fixed Rate

If your payments are already fluctuating, refinancing
to a fixed-rate mortgage keeps your payments steady. Your rate will stay constant in a rising-rate environment.

You Have Other Debt You Need to Reduce

Do you have credit card debt, student loans, car loans
or any other high-interest debt? A cash-out refinance could help you reduce or eliminate your debt. Debt consolidation is one of the most popular reasons people refinance.

You Want to Make Home Improvements

Would your home benefit from a new kitchen, new windows or an addition? A cash-out refinance is one of the most affordable ways you can fund home improvements.

You Have College Tuition to Pay

Refinancing with a cash-out option can help you or your loved ones reach their educational goals as well. Whether you’re returning to school or you’re paying for your child’s college tuition, refinancing could help make it happen. Talk to your tax advisor when paying for tuition, because there can even be a tax-deduction benefit for taking the cash-out option.

Your Credit Score Has Improved

If you’ve worked hard to improve your financial situation by paying off credit accounts that were weighing down your score, it’s time to call your Home Loan Expert. You could qualify for a much lower interest rate if your score has substantially improved.

Do the Math: Equity + You = Power

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Let us show you how refinancing to use the equity in your home can work for you.

Home Equity, Defined

Home equity is the monetary difference between the value of your home and how much you have left to pay on your mortgage. For example, if your home is valued at $200,000 and you owe $150,000 on your mortgage, you have $50,000 of equity in your home.

Getting the Home Equity Advantage

The equity you have in your home can be a powerful tool to help you achieve your financial goals. Home equity can help you get through a rough financial patch, pay for home improvements, fund college tuition, eliminate high-interest debt — whatever fits your needs. Using home equity as a means of payment usually means the interest rate is lower than with most credit cards. What’s more, the interest accrued on a cash-out refinance can be tax deductible.

Refinancing Your Mortgage with Cash Out

If the value of your home increased in the time since you purchased it, you can refinance at its current value. You’ll receive a lump sum of cash equal to the difference in equity.

Benefits

  • Lower mortgage payments
  • Access cash to pay o high-interest debt
  • You could shorten the term of your home loan
  • Lower interest rate

Do Your Research: Go Bigger or Go Home?

couple_sitting_on_the_floor_after_painting

You own a home and your family needs more space. Now what? Do you add on to your current home or do you move to a larger one? These quick tips can help you decide.

What to Consider

If you love your neighborhood, the school system is great, and everything you need is right nearby, consider remodeling. If you do, consider the costs associated with a remodel and what your neighborhood will approve. It’s also important
to find a contractor you can trust.

Raise Your Hand

Ask your contractor if your home’s style and structure are suited for an addition. Check with your local authorities about land use and zoning regulations as well.

Is It Worth It?

Next, add up the potential costs of both options. Your Quicken Loans Home Loan Expert can help you crunch the numbers. Let him or her know what the estimated cost of your remodel will be. By adding the cost of your remodel to your estimated closing costs, and recalculating your cash-out refinance at the current interest rate, you’ll have a good idea of your projected monthly mortgage payment.

In comparison, you could sell your current home and use the proceeds to pay the upfront costs of a larger home. Your Home Loan Expert can also help you calculate the cost of making the move. Have a ballpark price range in mind for an accurate comparison and don’t forget to factor in moving costs, closing costs and real estate agent costs, when applicable. The cost of moving can be around eight to 10 percent of your current home’s value, according to the American Homeowners Foundation. And consider these costs wouldn’t be included as part of a remodeling project.

The Short Course in Home Loan Options

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Quicken Loans knows everyone has a specific financial situation. That’s why we offer so many flexible loan options. Take the YOURgage SM , for example. With the YOURgage, you get the flexibility to choose the term of your loan, anywhere from 8–30 years, to fit your needs.

Whether you’re a first-time home buyer, looking for a way to lower your monthly payment, or looking to pay o some debt, your Quicken Loans Home Loan Expert is ready to help you find the right mortgage for you. Here are a few of the loan options and term lengths you might talk about when you call us:

Long-Term Mortgages: 20–30-Year Fixed-Rate Mortgages

Getting a mortgage term that’s 20 years or longer is a great option if you plan to stay in your home for 10 or more years, and you expect your income will stay the same. With a long-term, fixed-rate home loan, your payments will never change and your interest rate will stay constant over the life of the loan. The downside? You’ll be paying interest over a longer period of time, which means you may end up paying more over the life of the loan. If you choose a long-term mortgage, you’ll also want to pay close attention to changing interest rates in the home loan market. If interest rates drop below your fixed rate, you’ll want to refinance to take advantage of them.

Shorter-Term Mortgages: 8–15-Year Fixed-Rate Mortgages

If paying o your mortgage quickly is a priority for you, a shorter-term mortgage could be the right choice. The advantage? You’ll pay o your mortgage in less time, and you’ll typically pay less interest because your term is shorter. Most importantly, you’ll build more equity in a shorter period of time, because more of your monthly payment goes toward paying o your loan’s principal. And of course, your fixed interest rate and payment amount will never change over the life of the loan.

Talk to your tax advisor about whether a shorter-term mortgage would affect your deductions.

Case Studies in Refinancing

Case Study #1: Credit Crunch

Paul and Karen were in a short-term financial crunch. They were having a hard time paying their bills every month and meeting deadlines. They felt like they had a lot of credit cards to keep track of and were only able to pay the minimum payment on most of them.

SOLUTION: Paul and Karen consolidated their debt by refinancing and lowering their mortgage payment. Now they’re able to pay o the balances on their credit cards much faster.

Case Study #2: Uneven Income, Smooth Refi

Cari is a successful equipment sales agent, but her income is cyclical. She has an influx of cash during some months, but other months are too slow to make ends meet.

SOLUTION: Cari refinanced to 30-year fixed-rate mortgage, which helps her manage the peaks and valleys of her finances. When her commission income is up, she pays down the principal of her loan by paying more than the minimum monthly payment. When her income is down, she continues to make the minimum payment, but since it’s a 30-year mortgage, her payment is spread over the 30-year term of her loan, making the payments as low as possible. She can now count on a low, fixed monthly payment when sales are down, and the flexibility to pay down her principal when sales are great.

Case Study #3: Tuition Fruition

With their daughter starting college in the fall, Deon and April needed to pay tuition throughout the school year.

SOLUTION: Deon and April refinanced their mortgage with cash out. They used the cash they took out to make large tuition payments every semester. Because the interest rate on the cash they’d taken was lower than using a credit card, they paid less in interest.

Refinancing your mortgage is easier than you think. Check out our revolutionary way to obtain a home loan completely online with Rocket Mortgage!

You can also check out Refinancing 101 above on SlideShare, or you can view or print the PDF version.

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This Post Has 30 Comments

  1. We refinanced around 2 years ago to do some home improvement but where not able to take out as much as we needed to finish everything. Is it possible to refinance again? the interest rates are quite a bit lower now then the rate we got. We have around 115K in equity.

    1. Hi Steve:

      A cash out is something you can certainly take a look at. One thing to note since you said you haven’t been able to finish is that any existing works may have to be finished before the house will appraise. The article I’m sending you applies to FHA, but many of the requirements are similar between programs. That would probably be the biggest potential hurdle.

      Thanks,
      Kevin Graham

  2. I was discharged from a Chapter 13 about 2 years ago. Can I refinance? Will my rate be higher than usual? Say 4.5% for 30 yrs instead of 3.5% for 30yrs. What kind of fixed loan?

    1. Hi Rod:

      It’s very difficult to answer a rate question on the blog because a great number of factors go into determining the rate including your credit history, but also your down payment, assets and income. I’m going to have someone reach out who can look further into your situation. I’m sorry for the delayed response. We’ve had site maintenance performed this past weekend.

      Thanks,
      Kevin Graham

  3. How is it you can get a loan to buy a truck that is more than you owe on your home but not qualify to refinance a home

  4. I’ve been in my home now for almost 6 months. I purchased with an FHA loan. When will I be eligible to refinance?

    1. Hi Matt:

      That depends on what you’re trying to do. If it’s a rate/term refinance, you may be able to take action right now. On the other hand, if you want to take cash out, you may have to wait a little longer. That said, I’m going to have someone reach out to you about this.

      Thanks,
      Kevin Graham

    1. Hi Lillian:

      It’s difficult to give you any broad generalizations because each loan option is different. We can have someone reach out to you and determine what your goals are and look into available loan options from there.

      Thanks,
      Kevin Graham

    1. Hi Judy:

      Unfortunately, we don’t do any work with mobile or manufactured homes. I’m sorry, but I wish you luck!

      Thanks,
      Kevin Graham

  5. if a family member doesn’t have enough income to refin.
    can another family member be added to the loan to help the refin.

  6. We are tied up in a ballon mortgage, that no one ever mentioned at all. So disgusting to think someone would do another human being like we have been. Now we are under. Loan balance is $56,000, house valued. At 51,000. Is there any way out of this?

    1. Hi Doris:

      That is a difficult situation. I’m not familiar with what your options might be, but I’m going to get your question to a Home Loan Expert who might be able to provide more insight. They’ll be reaching out.

      Thanks,
      Kevin Graham

  7. What is that they look for when refinance you home..!! My husband just got a new job & im thinking on refinance; but my husban has a new job he is making less money since we bought the house so how long do we wait to apply & all the things mortgage look for when refinance is needed I know about buying but not sure if Is the same with this situation.??? Thanks!

    1. Hi Celeste:

      There are a variety of factors we look for when determining if refinancing your loan makes sense for you. I’m going to have someone reach out and help you look into this. They’ll be in contact.

      Thanks,
      Kevin Graham

    1. Hi Dani:

      It depends on the type of loan you’re trying to get as far as whether an appraisal is required in a refinance situation. I’m going to have someone reach out to you about this. They’ll be able to give you a specific answer after looking into what you’re thinking about applying for.

      Thanks,
      Kevin Graham

  8. I responded to an email telling me Quicken would give me an estimate on what the interest rate would be for me if I refinanced. Still have not seen that number in spite of my sending you all the info you asked for. Smells messy to me.

    1. Hi mm:

      I understand your frustration. I’m going to have someone reach out to you so we can determine what’s going on here and help you get the information you’re looking for.

      Thanks,
      Kevin Graham

  9. quit sending me information on house loans. You don’t finance manufactured homes. I have a manufactured home setting on 10 acres of land in the country.

  10. That was an interesting piece of work! Recent study shows that 7 out 10 borrowers have atleast 25% in depositis and banks are even tightening their norms.

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