Mortgage rework vs refinancing: what you need to know

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An alternative for homeowners looking to reduce mortgage payments. (iStock)

Refinancing a mortgage involves replacing your existing mortgage with a new one, which usually has a lower rate. With historically low interest rates, many homeowners have taken the opportunity to refinance in 2020 and 2021. In fact, an estimated $ 772 billion of the first lien was refinanced in the fourth quarter of 2020. Freddie Mac

If you have a good interest rate and your goal is simply to reduce your monthly payment, you have another option: changing your mortgage. While not as common as refinancing, you can change the loan by making a lump sum payment that will reduce your balance. Your terms, such as interest rate and duration, remain the same. What changes affect your balance and monthly payment because your lender is recalculating your monthly bill based on the lower loan amount.

Recycling mortgages and refinancing have their pros and cons. If you have extra money and plan to pay extra on your mortgage, here’s what you need to know about reviewing your mortgage. For more information on refinancing visit Credible to find out about the most relevant refinancing rates and compare lenders.

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Reconsideration and Refinancing Can Help Homeowners Save Interest

Both the renegotiation and refinancing will affect the total amount of interest you pay over the life of the mortgage. However, how the cut will affect your budget will vary.

For example, if you have a mortgage balance of $ 300,000 and you can reduce the principal by $ 50,000, the revised loan will be based on the amount of $ 250,000. At an interest rate of 3%, a 30-year fixed-rate loan will drop from $ 1,398 to $ 1,165, saving you $ 21,731 in interest over the life of the loan, as well as lower monthly payments. Moreover, you will increase the capital of your home. This mortgage rework savings calculator can help you determine how much you can save.

If you refinance your $ 300,000 mortgage balance with a new loan at 3% per annum, your payment is $ 1,265. Depending on the initial interest rate on the loan, your savings may vary. For example, if your current loan has an interest rate of 4%, your current monthly payment is $ 1,432. Refinancing will save you $ 167 per month and $ 60,277 in interest over the life of the loan.

Visit Credible to get the most current rates from several lenders on one page.

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The recalculation fee is usually lower than the closing costs of the refinancing.

When it comes to commissions, re-casting offers an advantage as it is cheaper than refinancing. When you refinance your mortgage, you get a brand new loan that includes final costs such as appraisal and disbursement fees. However, if the loan is reused, these costs are not charged. Instead, your lender will likely collect a small commission of a few hundred dollars for the service.

Refinancing can help you get a new, lower mortgage rate

As of May 13, 2021 Freddie Mac reports that the average rate on a 30-year mortgage is less than 3%, and shorter terms offer rates even lower. Borrowers with good credit ratings can claim the lowest rates. If you financed your home a few years ago, you can qualify for a significantly lower interest rate. In this case, refinancing the loan instead of reusing it may be the best choice, because when you refinance the loan, your interest rate does not change.

Visit the Credible online loan marketplace to compare mortgage refinancing rates through several lenders.

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Refinancing allows you to pay off your mortgage faster

When you revise your mortgage, your terms and conditions are preserved, including the current loan payment schedule. If you want to pay off your mortgage faster, refinancing can help you achieve that goal. You can refinance 30 year mortgage to 15 year loan to speed up the payout process. And with a lower interest rate, you can free up enough money in your monthly budget to make additional payments on your loan and pay off even faster.

Credible’s online mortgage calculator can help you get an idea of ​​how the new interest rate will affect your monthly mortgage payments and budget.

Pumping requires a lump sum of money

While re-issuing the loan does not increase the cost of closing your balance sheet, you do need access to a lump sum. The minimum amount required to change the loan may vary depending on the lender, but usually you need to reduce the balance by at least $ 20,000. This can be a disadvantage compared to refinancing as it can eat up your available funds.

Both modifying and refinancing your mortgage can lower your monthly payment, allowing you to improve cash flow and use your available funds for other financial purposes. Before choosing one, please visit Credible to contact experienced loan officers… They will answer your questions and help you make the right choice in your situation.

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Have a financial question but don’t know who to contact? Write to a safe money expert at moneyexpert@credible.com and your question can be answered by Credible in our Money Expert column.

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