Mortgage Refinance Options:
Refinancing Your Home Loan May Make Sense
Refinancing your mortgage means replacing your current home loan with a new mortgage. Depending on your goals and financial situation, refinancing may help you change your interest rate or loan term, potentially lower your monthly payment, access home equity, or consolidate certain higher-interest debts.
But refinancing isn’t automatically the right move for every homeowner. The costs of a new mortgage, your current loan terms, how long you plan to stay in your home, and your long-term financial goals all matter.
At Delmar Mortgage, we help homeowners understand their refinance options and determine whether refinancing may make sense for their individual situation.
What is mortgage refinancing?
A mortgage refinance replaces your existing home loan with a new mortgage. The new loan is generally used to pay off your current mortgage, and you begin making payments under the newly established mortgage loan terms. Homeowners may consider refinancing to:
- Lower their mortgage interest rate
- Shorten or extend their loan term
- Access available home equity
- Consolidate certain higher-interest debts
- Fund eligible home improvements
- Change their mortgage structure
- Finance college tuition or vacation
The right reason to refinance depends on your financial goals and the options for which you qualify.
What are the different types of mortgage refinancing?
The two broad refinance options are no-cash-out refinancing and cash-out refinancing.
What is a no-cash-out refinance?
A no-cash-out refinance generally replaces your existing mortgage without taking significant cash out of your home’s equity.
You may consider this type of refinance if you want to:
- Reduce your interest rate
- Change your loan term
- Move from an adjustable-rate mortgage to a fixed-rate mortgage
- Restructure your existing mortgage
For example, a homeowner who has a 30-year mortgage may explore refinancing to a shorter-term loan. While the new monthly payment could be higher, the homeowner may build equity faster and pay less interest over the life of the loan.
What is a cash-out refinance?
A cash-out refinance replaces your existing mortgage with a new mortgage for a larger amount than you currently owe. The difference between your existing mortgage balance and the new loan amount may be available to you as cash, subject to applicable loan program requirements.
Homeowners may consider cash-out refinancing for:
- Home improvements
- Debt consolidation
- Major expenses
- Other financial goals permitted by the loan program
Because a cash-out refinance increases the amount secured by your home, it is important to understand the new loan amount, monthly payment, interest rate, closing costs, and repayment terms before moving forward.
When should you consider refinancing your mortgage?
There is no single interest rate that makes refinancing right for everyone.
Instead, consider how a new mortgage would affect your monthly payment, total interest, loan term, closing costs, home equity, and long-term financial goals.
Here are some common reasons homeowners explore refinancing.
You may be able to improve your mortgage rate
If the rate available to you is lower than the rate on your current mortgage, refinancing may reduce your interest rate and may lower your monthly principal and interest payment.
However, the interest rate is only one part of the equation. Refinancing comes with costs, so you should compare the potential savings with the cost of obtaining the new mortgage.
You want to change your loan term
Refinancing may allow you to change the length of your mortgage.
For example, moving from a longer-term mortgage to a shorter-term loan could help you build equity faster and potentially reduce the total interest paid over the life of the loan.
The tradeoff is that a shorter loan term typically results in a higher monthly principal and interest payment.
You want to access your home's equity
If your home has increased in value or you’ve paid down your mortgage, you may have built equity in your home.
A cash-out refinance may allow eligible homeowners to access some of that equity.
The amount of equity you can access depends on factors such as your property’s value, current mortgage balance, loan program requirements, credit qualifications, and other factors.
You want to consolidate higher-interest debt
A cash-out refinance may allow eligible homeowners to use available home equity to pay off certain higher-interest debts.
For some homeowners, this could simplify their finances by replacing multiple debt payments with a single mortgage payment.
However, debt consolidation through a mortgage does not eliminate the debt. It moves the debt into a loan secured by your home.
That means it’s important to consider the new loan interest rate, repayment term, closing costs, and total cost before deciding if this strategy makes sense for you.
You want to make significant home improvements
Homeowners may also consider refinancing to access funds for eligible home improvement projects.
Depending on your situation, those projects could include:
- Kitchen or bathroom renovations
- Roofing
- Siding
- HVAC improvements
- Adding a deck or other outdoor living space
- Finishing a basement
- Other significant property improvements
A cash-out refinance isn’t necessarily the best financing option for every project, so it’s worth comparing your available choices.
Can refinancing lower my monthly mortgage payment?
It can, but a lower payment is not guaranteed.
Your new mortgage payment depends on several factors, including:
- Loan amount
- Interest rate
- Loan term
- Property taxes
- Homeowners insurance
- Mortgage insurance, if applicable
- Other applicable costs
Extending your loan term may reduce your monthly principal and interest payment, but it could also increase the amount of interest you pay over the life of the loan.
That’s why it’s important to look beyond the monthly payment when evaluating a refinance.
Can I use a refinance to consolidate debt?
Potentially, yes.
An eligible cash-out refinance may allow you to access home equity and use the proceeds to pay certain debts, including qualifying higher-interest debt.
For example, a homeowner with significant credit card debt could explore whether using available home equity to pay off that debt would improve their overall financial picture.
However, there is an important distinction between the two types of debt.
Credit card debt is generally unsecured. A mortgage is secured by your home.
Moving debt into a mortgage can change both the repayment period and the total interest paid. A lower monthly payment doesn’t necessarily mean you’ll pay less overall.
Before using home equity to consolidate debt, compare the complete costs and consider whether the strategy supports your long-term financial goals.
Can I refinance to pay for home improvements?
In some cases, yes.
Eligible homeowners with sufficient equity may be able to use a cash-out refinance to access funds for certain home improvement projects.
Using home equity can provide an option for financing a significant renovation, but it also means taking on a new mortgage with new terms and costs.
Your Loan Officer can help you compare the available financing options based on the project, your current mortgage, and your financial goals.
What are the benefits of refinancing a mortgage?
The potential benefits of refinancing depend on your situation, but they may include:
Lower interest rate
A new mortgage may offer a lower interest rate than your existing loan, depending on market conditions and your qualifications.
Lower monthly payment
A different interest rate, loan amount, or loan term may reduce your monthly principal and interest payment.
Access to home equity
A cash-out refinance may allow eligible homeowners to access a portion of their available home equity.
Debt consolidation
Certain higher-interest debts may potentially be paid using proceeds from a cash-out refinance.
A different loan term
Refinancing may allow you to move to a shorter or longer repayment period.
A different mortgage structure
Depending on your circumstances, refinancing may allow you to change from an adjustable-rate mortgage to a fixed-rate mortgage or otherwise restructure your home loan.
What does it cost to refinance a mortgage?
Refinancing is not free. A new mortgage may involve costs such as:
- Lender fees
- Origination charges
- Appraisal costs
- Title and settlement costs
- Recording fees
- Prepaid taxes and insurance
- Other applicable closing costs
Some costs may be financed into the new mortgage, depending on the loan program and transaction.
Because refinancing creates a new mortgage, it’s important to compare the upfront costs with potential financial benefits.
How do I know if refinancing is worth it?
One of the most important questions to ask is:
Will the potential financial benefit of refinancing outweigh the costs of obtaining the new mortgage?
Consider these factors:
- Your current interest rate: How does it compare with the rate available to you?
- Your current mortgage balance: How much do you still owe?
- Your remaining loan term: How many years remain on your current mortgage?
- Your potential new payment: How would the new payment affect your monthly budget?
- Refinance costs: How much will the new mortgage cost to obtain?
- How long you’ll remain in the home: Will you stay long enough to potentially benefit from the refinance?
- Your financial goals: Does refinancing support what you’re trying to accomplish?
A refinance calculator can help you explore how changes in your loan amount, interest rate, and loan term could affect your payment.
Mortgage refinance example
Consider a hypothetical homeowner with:
- Current mortgage balance: $200,000
- Current mortgage rate: 3.5%
- Credit card debt: $20,000
- Credit card interest rate: 20%
This homeowner could explore a cash-out refinance that pays off the existing mortgage and qualifying credit card debt.
For illustration purposes, suppose the homeowner refinances into a $220,000 mortgage at 6.5%.
The new mortgage payment would be higher than the homeowner’s original mortgage payment because the new loan has a higher interest rate and larger balance. However, the separate credit card payment would no longer be required in this example.
The key point is that a refinance should be evaluated based on the complete financial picture, not simply whether the new mortgage rate is higher or lower than the current rate.
Actual rates, payments, costs, loan amounts, savings, and eligibility vary by borrower and loan program.
What should I consider before refinancing?
Before deciding to refinance, consider these questions.
How long do I plan to stay in my home?
If you expect to move soon, the upfront costs of refinancing may make it harder to realize the potential benefits of a new mortgage.
What will my new payment be?
Look at the complete payment, including applicable taxes, insurance, mortgage insurance, and other costs—not just principal and interest.
How much will refinancing cost?
Ask your Loan Officer for an estimate of the costs associated with your potential refinance.
Will I reset my loan term?
If you have already been paying your current mortgage for several years, refinancing into a new 30-year mortgage could extend your repayment period.
Am I using my home equity responsibly?
If you’re taking cash out, have a clear purpose for the funds and understand that the new mortgage is secured by your home.
Does refinancing support my long-term goals?
The refinance with the lowest monthly payment isn’t necessarily the best option. The right choice depends on your overall financial situation and what you want your mortgage to accomplish.
Is refinancing my mortgage right for me?
There isn’t a one-size-fits-all answer.
Refinancing may make sense if you want to change your mortgage rate or term, access home equity, consolidate certain higher-interest debts, or fund a significant home improvement project.
At the same time, refinancing comes with costs and creates a new mortgage. That’s why it’s important to compare the potential benefits with the new loan’s terms, costs, and long-term impact.
A Delmar Mortgage Loan Officer can help you review your current mortgage, discuss available refinance options, and understand the numbers before you decide.
Frequently Asked Questions About Mortgage Refinancing
What does it mean to refinance a mortgage?
Refinancing means replacing your existing mortgage with a new home loan. The new loan generally pays off your current mortgage, and you begin making payments under the new loan terms.
What does it mean to refinance a mortgage?
Refinancing means replacing your existing mortgage with a new home loan. The new loan generally pays off your current mortgage, and you begin making payments under the new loan terms.
Is refinancing a mortgage worth it?
It can be, depending on your interest rate, loan balance, closing costs, loan term, how long you plan to remain in the home, and your financial goals. A lower monthly payment alone doesn’t determine whether refinancing is worthwhile.
Can I refinance if my mortgage rate is already low?
You may still have reasons to explore refinancing, including changing your loan term, accessing home equity, consolidating certain debts, or changing your mortgage structure. Whether refinancing makes sense depends on your individual circumstances.
What is a cash-out refinance?
A cash-out refinance replaces your existing mortgage with a new mortgage for a larger amount, allowing eligible homeowners to receive a portion of their available home equity as cash, subject to applicable loan program requirements.
Can I use a cash-out refinance to pay off credit card debt?
An eligible cash-out refinance may allow you to use home equity to pay off certain debts, including qualifying credit card debt. Because the debt becomes part of a mortgage secured by your home, it’s important to understand the costs and long-term implications.
Can I refinance to pay for home improvements?
Potentially. Eligible homeowners may be able to use a cash-out refinance to access home equity for certain home improvements. Other renovation financing options may also be available depending on the project and borrower qualifications.
Does refinancing lower my mortgage payment?
It can, but not always. Your new payment depends on factors such as the loan amount, interest rate, loan term, taxes, insurance, mortgage insurance, and other applicable costs.
How much does it cost to refinance a mortgage?
Refinancing costs vary by transaction and may include lender, appraisal, title, settlement, recording, prepaid, and other costs. Your Loan Officer can provide an estimate based on your specific refinance scenario.
How long does a mortgage refinance take?
The timeline varies based on the loan type, property, documentation, appraisal, title work, underwriting, and other factors. Your Loan Officer can explain what to expect based on your specific transaction.
Should I refinance if interest rates are lower?
A lower rate can be a reason to explore refinancing, but it isn’t the only factor. Compare the potential savings with closing costs, your remaining loan term, and how long you expect to keep the home.
Why work with Delmar Mortgage?
Refinancing is a significant financial decision, and the right strategy depends on more than a single interest rate.
At Delmar Mortgage, our experienced mortgage professionals take the time to understand your goals, explain your options, and help you evaluate the potential benefits and costs of refinancing.
Founded in 1966, Delmar Mortgage has decades of experience helping borrowers navigate the mortgage process. Today, Delmar is licensed in 42 states and provides homeowners with access to a broad range of mortgage solutions.
If you’re considering refinancing, start by looking at your current mortgage, your goals, and what you want your new loan to accomplish. Then talk with a Delmar Mortgage Loan Officer about the options available for your situation.
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