Refinancing your home can lower your monthly payment significantly. It can do this in 2 ways – by lowering your interest rate or extending the loan’s term. Lowering your interest rate reduces payments without lengthening or shortening the term of your loan.
Refinancing can help you pay off your loan faster. With a lower interest rate, let’s say 2.75%, you can pay more principal down compared to a higher interest rate of 4%.
Just like how you can extend your loan, you can also shorten it from 30 to 15 years. This will increase your monthly payments, but it will save you money in the long run from all of the interest you avoid paying.
Private mortgage insurance is required until 22% of your loan has been paid off. Homeowners can avoid paying private mortgage insurance by putting 20% down at closing. Refinancing can eliminate the need for private mortgage insurance, saving you hundreds of dollars per month if you refinance for a lower interest rate.