This plan allows you to refinance your mortgage for more than you currently owe. The difference and the equity are converted into cash for the homeowner.
*Using your home equity to pay off debts or make other purchases does not eliminate the debt or the cost of the purchases, but rather increases the loan amount of your mortgage to be paid according to your new mortgage terms.
If you currently have a high fixed-rate mortgage and the rates have dropped due to market conditions, then you may want to refinance to a low fixed-rate loan. Also, if you have an ARM, you might consider this option in order to get the security of a fixed rate. Even if your adjustable rate is low now, it is not guaranteed to remain that way; but if you get a low fixed-rate loan, then you lock that low rate in for the life of the loan. This option is a good choice if you are not planning on moving within the next five years.
If your main goal is to quickly build up equity and to pay off your mortgage sooner, then the shorter-term loan is probably your best choice. A lot of times, if you refinance to this type of loan, your monthly payments will be higher, but you will pay substantially less interest and your mortgage will be paid off sooner. Also, you would benefit from a larger tax deduction on interest if you move from a 30-year fixed to a 15-year fixed loan. There are some cases, however, in which you may be able to refinance to a shorter-term loan without raising your monthly payment -if you’ve had your current mortgage for enough years.
If your current monthly payments are higher than is comfortable for your financial situation, then you might want to consider refinancing to a longer-term loan. This will result in a decrease in your monthly payments, since you will have more time to repay the loan. Examining your current mortgage and knowing how you would like to improve it are the first steps you need to take when starting the refinancing process. Once you know this, you can choose the option that will best help you achieve your goals.
Senior Mortgage Advisor // NMLS #1243885
Licensed in MN & WI
Tyler Mulcahey Peters was born & raised in Minnesota. He grew up in southern Minnesota, attended Gustavus Adolphus College (go Gusties!), and has lived in Minneapolis since 2013. He and his husband, Andrew, purchased their first home together in 2017 and they currently live in the Hale neighborhood on the west side of Lake Nokomis with their two spoiled Chihuahuas, Bentley & Piper.
A mortgage and loan professional since 2013 and having helped over 1,000 individuals, couples, and families become homeowners, he has the knowledge and experience to help you through the loan process, find the terms that are right for your budget, and make sure all the legalities are competently handled so that the closing goes smooth and you can take possession of your new property on-time (and often-times, early).
In his free time, you’ll catch him eating out at one of his favorite local restaurants, traveling, attending a music festival, or spending time with his friends & family.
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