The Basics of Mortgage Loan Refinancing

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What is mortgage loan refinancing? At its most basic level, refinancing is getting a new mortgage loan to replace the one you currently have, usually with better terms or conditions to save you money over time. Many customers will refinance their mortgage loan when they see that rates have fallen or they notice that their credit score has improved enough to qualify for a better mortgage loan. There are four main reasons why people choose to refinance their mortgage loan:

Lowering the interest rate.
The interest rate on your mortgage is tied directly to how much you pay each month. In essence, lower rates usually mean lower payments. Remember, even a small difference in the payment each month can add up to a great deal of savings over the life of the loan. Additionally, a lower rate may allow you to build equity in your home faster.

Adjusting the length of the mortgage loan.
Many times, customers will refinance in order to decrease the term of their mortgage loan. For example, they would like to have a 15-year mortgage loan instead of a 30-year mortgage loan. A shorter term loan will allow them to pay off the loan sooner, paying less in interest costs throughout the life of the loan. The trade-off, however, is the monthly payment is usually a little higher. In other instances, members/customers may want to extend the length of the loan (e.g., 15 years to 30 years) to reduce the monthly payment. However, it is important to point out that this change will increase the amount of interest paid over the life of the loan.

Change from an adjustable-rate mortgage to a fixed-rate mortgage.
In some instances, customers took advantage of an adjustable-rate mortgage, or ARM, because the rate was lower than a fixed-rate loan when they originally applied for the loan. However, with that ARM, they took the risk of the payments increasing or decreasing on a fairly regular basis. A fixed-rate mortgage loan payment will stay the same throughout the life of the loan; therefore, if you want a little more stability in your mortgage loan payment, a fixed-rate loan is a better option for you.

Getting cash out from the equity in your home.
The equity in your home is the dollar value difference between the balance you owe on your mortgage loan and the value of your property. When you refinance for an amount greater than you owe on your home, you can receive the difference in a cash payment, or what is referred to as “cash-out refinancing.” You can use this cash to make home improvements, pay for college, open a business, etc. It is important to point out, though, that when you take out the equity of your home, you technically own less of your home and it will take time to build it back up.

Is refinancing for you?
It all depends on what your financial or personal goals may be. If you are considering moving in a few years, it would not be wise to refinance. Or, if you have owned your home for a long time, it may be best to just let things ride out because you may end up paying more for your home in the long-run if you refinance. But, for many customers/members, refinancing is a great option to lower their monthly payments and save money over the life of the loan.

Are you eligible to refinance?
Determining your eligibility for refinancing is similar to the approval process you went through when you applied for your original mortgage loan. At BancorpSouth, we will consider your income and assets, credit score and other debts, the current value of your property and the amount you want to borrow. If your credit score has improved since your original loan, you may even be eligible to get a loan with a lower rate. It is important to point out, though, that if your home is not worth as much as you owe on your current mortgage loan, refinancing is not the best option for you at this time; however, give us a call at 1-888-797-7711 as there are some other options available for members/customers in this situation.

For more information about our current mortgage options, or to start the refinancing process, click here, call us at 1-888-797-7711, or stop by any of our branches. We look forward to hearing from you.