Though some
mortgages
do turn out to be the
lifetime commitment they seem to be at your closing, you may choose
to
refinance
— or arrange for a new mortgage at a lower rate
or for a different term. With the new money you borrow, you pay
off the original mortgage.
You may want to refinance your mortgage for
several reasons:
You
can get a lower interest rate, which will reduce
your monthly payment and often the overall cost
of the mortgage.
You
may want to consolidate outstanding debt — for
example, by combining a first and second mortgage
into a single new one.
You
may want to reduce the term of your loan to build
equity
faster. While this may increase your monthly
payment, it will dramatically reduce your total
cost.
You
may want to use the equity in your home for a major
purchase, such as a child’s education. This
is often called a cash-out refinance.
Refinancing doesn’t come cheaply, though. Just as when you get your original mortgage, you often have to pay up-front fees and closing costs when you refinance, even if your mortgage is only a few years old.
The seven-year itch
The average mortgage lasts seven years before it is either refinanced or paid off because the home is sold.
