Refinance Your Home


The most common reasons to refinance your home mortgage is to take cash out, get a lower payment or shorten your mortgage term.

Refinance Your Home With A Cash Out Option

Refinancing your mortgage is a great way to use the equity you have in your home. With a cash-out refinance, you refinance for a higher loan amount than what you owe and pocket the difference. Any proceeds you receive are tax-free.

Many homeowners use cash from their home to pay off high-interest credit card debt and student loan debt. You can also take cash out to finance home improvements, education or whatever you need. Since mortgage interest rates are typically lower than interest rates on other debts, a cash-out refinance can be a great way to consolidate or pay off debt. Additionally, mortgage interest is tax-deductible, but the interest on other debts usually isn't.

You may be able to take cash from your home if you've been paying on the loan long enough to build equity. Additionally, you may be able to do a cash-out refinance if your property value has increased; a higher value on your home means your lender can give you more money to finance it.

man counting his money

Get a Lower Payment When You Refinance Your Home

A lower mortgage payment means more room in your budget for other things. There are a few ways you can lower your payment by refinancing.

First, you may be able to refinance your home with a lower rate. If rates now are lower than they were when you bought your home, it's worth talking to your lender to see what your interest rate could be. Getting a lower rate means lowering the interest portion of your monthly payment – and big interest savings in the long run.

Second, you could refinance your home to get rid of mortgage insurance – a monthly fee you pay to protect your lender in the event that you default on the loan. Mortgage insurance is usually only required when you put down less than 20%. You could save hundreds of dollars a month by refinancing to stop paying monthly mortgage insurance.

Third, you can get a lower payment by changing your mortgage term. Lengthening your term stretches out your payments over more years, which makes each payment smaller.

There may be other ways you can get a lower payment, so it's always worth checking with your lender to see how they can help you get a payment that fits your current budget.

Shorten Mortgage Term

Shortening your mortgage term is a great way to save money on interest. Often, shortening your term means you'll receive a better interest rate. A better interest rate and fewer years of payments mean big interest savings in the long run.

So how does this work? Let's look at an example. Say your loan amount is $200,000. If you got a 30-year loan with a 3.5% interest rate, you would pay approximately $123,000 in interest over the life of the loan. However, if you cut your term in half, you would pay about $57,000 in interest over the life of the loan. That's a difference of $66,000 – and it doesn't even account for the fact that the shorter term would provide you with a lower interest rate (and more savings).

An important thing to know about shortening your term to refinance your home is that it may increase your monthly mortgage payment. However, less of your payment will go toward interest, and more of it will go toward paying down your loan balance. This allows you to build equity and pay off your home faster.

Apply to Refinance Your Home

It's important to prepare your financial documents before applying to refinance your home, so you can close your mortgage quickly. Here are some of the things your mortgage lender will probably request:

  • Your two most recent pay stubs
  • Your two most recent W-2s
  • The most recent two months of bank statements

If your spouse or someone else will be on the loan with you, they'll need to provide these documents too so your lender can get the whole picture of your financial situation.

If you're self-employed, you'll have to provide a few more documents to demonstrate your income. Some lenders will ask to see your entire tax return so they can see the exact amount of cash in and cash out.

Get Started with Altitude Home Loans

Our team of experienced and talented professionals have come together to provide you and your family the ultimate experience in home financing. From our loan originators and assistants with fantastic reputations who do business the right way, to the incredibly experienced and logic-driven underwriters, our goal is to place your family in the best available loan.

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