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Refinancing is beneficial if everything lines up in your favor. What can you get out of it? The list is long and exciting for someone stuck with loan payments that they aren’t happy with. At Riverview Bank we have solutions ranging from Home Equity Loan and Home Equity Flex PLUS (offering the flexibility of the home equity line, with an option to lock a portion or your entire balance into a home equity loan) to all types of mortgages – check out our home loan solutions today and start the process through an online or in person application.
Lower Interest Rate
One of the most powerful outcomes of refinancing a loan is a lower interest rate. Whether your credit score has improved since you originally took out the loan or simply because average rates have dropped, if a significantly lower rate is possible, it’s worth looking into. A lower interest rate can make a big difference in how much you pay over the life of your loan.
Lower Monthly Payment
If your current monthly payment is hard to afford, you might be able to lower it through refinancing. Most often, this is done through the combination of a long (or longer) term on a lower total loan amount. For example, if you took out a 30 year mortgage for $100,000 and paid off $20,000, that would leave you with $80,000 left to pay. If you decide to refinance with another 30 year loan, you can now spread the payments for the remaining $80,000 out over 30 years. This makes your monthly payment smaller.
That being said, it’s important to take interest into account. If you were already 10 years into your mortgage and decided to refinance for another 30-year mortgage, you’d now be paying interest for a total of 40 years. That means that while your monthly payments may be smaller, it’s possible that you’ll pay more overall than you would have without refinancing.Click here
You could refinance to shorten the term of your loan. Mortgages especially benefit from shorter terms. For example, the difference in total interest for a 15-year mortgage vs a 30-year mortgage is significant. This is because 30-year mortgages usually have higher interest rates and require you to make payments for twice as long, allowing more interest to rack up. Refinancing to a 15-year option will allow you to pay off the loan quicker and save some cash, but be aware that a shorter mortgage term also means higher monthly payments.Click here
If refinancing won’t significantly change your interest rate, it may be just as effective to simply make larger monthly payments on your own. But make sure to check if your loan has any prepayment penalties. These fees can be significant and reduce the benefit of paying your loan off early.
A cash-out refinance allows you to borrow enough money to pay off your old loan and a little extra. Unless it’s a limited cash-out refinance, you can then use that extra money for whatever you would like. Use extreme caution when considering a cash-out refinance as it increases your debt. While it may feel tempting to get extra cash, it’s dangerous to take out more than you can afford to pay back.
When doing a cash out refinance on a mortgage, you can usually borrow up to 80% of your equity (the market value for the amount of your home you own). But if you choose a cash-out refinance for an investment, like a home, you’re trading in equity for more debt and putting yourself in a riskier situation.
A New Type of Loan
If you’re unhappy with the type of loan that you originally borrowed, refinancing can allow you to change that. For example, if you started with an adjustable rate mortgage and want to switch to something a bit more steady, you can refinance with a fixed rate mortgage.
Refinancing is a fairly simple idea that can be complicated in action. Carefully consider whether the drawbacks and benefits of refinancing will come out in your favor. Be aware that there maybe costs associated with refinancing a loan since you’re essentially taking out an entirely new loan and can be charged multiple fees. Sometimes a home equity loan provides you no closing cost options, it just depends on the lender’s parameters.
Check out our Home Equity Loan Rate Special, a limited time offer that began on March 1, 2021! At Riverview Bank we provide application options online or in person, to give you the the banking experience you wish!
The article, virtual coach, and information provided herein are for informational purposes only and are not intended as a substitute for professional advice. Please consult your tax advisor with respect to information contained in this article and how it relates to you.
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*The Annual Percentage Rate special is effective as of March 1, 2021. Quoted APR is based on an automatic payment deduction from a Riverview Bank Plus Checking Account. Rate is subject to change or withdrawal at any time. Closed end Home Equity Loan. Monthly payment example includes principal and interest payments only, it does not include taxes, homeowner’s insurance, and flood insurance. Homeowners insurance is required. Flood insurance may be required. Your total monthly payment will be higher with taxes and insurance. $25,000 minimum loan amount; $400,000 maximum loan amount. $25,000 new money is required. 85% maximum Loan-to-value (LTV) with a minimum credit score of 700. Lowest score of all borrowers will be used. Owner occupied, 1-4 family residential properties only. First or second lien only. Non-purchase money transactions only. Pennsylvania properties only. Property cannot be an investment property, co-op, mobile home or manufactured housing (mobile homes, including those on land, on permanent foundation, and including single and double wide.) No closing fees for all loans $400,000 and under. Fees could range from $0 to $5,000 including the cost of a full appraisal and title insurance, if needed. Consult a tax advisor regarding deductibility of interest and fees. Subject to credit approval. Standard underwriting criteria apply. Offer may be changed or withdrawn at any time. Visit or call a Riverview Bank Community Office for full details. NMLS #654941.