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4 Benefits of Refinancing Your Home

a couple sits at their kitchen table looking over bills and a calculator

If you’re thinking about refinancing your home, it’s important to first do your research and weigh the pros and cons of refinancing. While there are a few disadvantages to financing your home, the pros usually outweigh the cons and can actually help you out in other areas throughout your home in the long run.

At Landmark National Bank, we’re committed to educating our customers about everything that comes with home loans and home ownership. Here are four benefits of refinancing your home mortgage and how to decide if it’s the right choice for you.

What does it mean to refinance your home?

When you refinance your mortgage, you’re essentially trading in your current home mortgage for a brand new one. It’s very similar to the home buying process and usually takes 30 to 45 days. Refinancing your home is an excellent way to leverage your investment and comes with many benefits that help you out in the long run.

Benefits of Refinancing Your Home

1. Shorten Your Loan Term

Most home mortgages start with a 30-year home loan. When you refinance your home, you are able to change your loan term to a 15- or 20-year fixed-rate mortgage. Shortening your loan term can help you pay your loan off faster and can help you save money on interest rates over time.

2. Lower Interest Rates

One of the main reasons homeowners choose to refinance is to get a lower mortgage interest rate. When you applied for your original home loan, you might not have had the best credit score or the value of your home may have been lower at the time. If your credit score has increased, if the value of your home has increased, or if the mortgage market is simply better now than it was before, you may be able to reduce your mortgage monthly rate when refinancing.

3. Lower Monthly Payments

With a lower mortgage interest rate comes lower monthly payments. With all the money you save from your mortgage payments, you can build your savings accounts, pay off other debts, prepare for retirement, and more.

4. Cash-Out Options

When you refinance your home, some borrowers have the option to cash out and have access to some of the money earned from your home’s equity. You can essentially use this money for whatever you need. Most people use these funds to send their children to college, pay off large debts and expenses, or pay legal fees.

One of the most common ways borrowers use cash-out funds after refinancing is for home improvement projects. With the extra money, you can make repairs and renovate your home, which may ultimately increase the value of your home in the end.

Drawbacks of Refinancing Your Home

After considering all the benefits that come with refinancing your home, it’s also important to note some of the drawbacks. One of the most significant drawbacks is the refinancing costs. Because you’re basically taking out a new home mortgage, you’ll have to pay the same closing costs and fees you paid the first time you took out a mortgage for your home. In general, expect to pay anywhere between 2 and 6 percent of the amount you borrowed.

Another drawback is the possibility of a lower credit score. Your credit takes into account the length of your credit history, so when you refinance, you’re changing that length. You might see a hit to your credit score when you refinance.

Finally, refinancing your home can take a lot of time. If you’re looking for a fast solution, refinancing may not be the best option for you.

Refinance Your Home with Landmark National Bank

When you’re ready to refinance your home or need advice on whether refinancing is the best decision for you, Landmark National Bank is here to help. Our associates are always available to talk through the refinancing process and provide you with the tools you need to be successful. Visit a mortgage lender at a Landmark National Bank near you to get started today!

Should I Refinance My Home?

Person using calculator to discover if they should refinance their home.

Whether you’ve changed jobs or your family has grown since you first purchased your home, you may discover that your mortgage no longer fits your financial needs. Instead of tackling the lengthy process of selling your home and finding a new one, consider refinancing it.

Refinancing sounds fairly simple: You apply for a new home loan, which pays off your original one and leaves you with just one loan and payment. However, much like buying a home, refinancing one is a big decision—and it depends on a lot of different factors that could cause you to lose money if you don’t make the right refi decisions.

Wondering if you should refinance your home? Discover if it’s the right choice for you and your family with Landmark National Bank.

Benefits of Refinancing

While there’s a wide variety of factors that go into refinancing, there are many benefits to choosing this option for your home. By refinancing, you can make certain adjustments to your mortgage that fit your budget, such as lower interest rates or shortening the term of your mortgage.

Want to learn more about the benefits of refinancing? Contact Landmark National Bank’s lending experts— they’d be happy to answer any questions you may have about refinancing.

 Lower Interest Rates and Smaller Payments

The most common benefit of a refi is receiving a lower interest rate for your loan payments, so you can stay in the home you love without hurting your finances. In addition to a lower interest rate, you may be able to shrink monthly payments for your mortgage. This can provide a much-needed break for your budget.

Shorter Term Length

If you’re considering moving to a new home in a few years, refinancing can also help you shorten the term for your mortgage. If you currently have a 30-year mortgage, you could refinance for a 15-year mortgage, which can lower your interest rate but increase your monthly payments.

Switching to an ARM or Fixed-Rate Mortgage

Whether you chose an adjustable-rate mortgage (ARM) or a fixed-rate mortgage when you first bought your house, it may no longer fit your plans for the future. If you’re rethinking your choice of mortgage, refinancing your home lets you switch to a more manageable option for your current lifestyle or situation.

Factors to Consider Before Refinancing

Before diving into refinancing your home, it’s crucial to calculate the factors of refinancing. If your credit score is less-than-thriving, for example, you may find yourself struggling to get your refinancing plans off of the ground.

Luckily, many factors of refinancing your home reflect the factors of buying a home. When you apply for a refi, these are some things you should consider:

  • Home Equity – If you have little to no home equity, refinancing with a conventional loan can be difficult. However, you can refinance with a federal housing administration (FHA) loan even if you have no equity. In addition, if you’re a veteran and your previous mortgage was a VA loan, you will also qualify for an Interest Rate Reduction Refinance Loan (IRRRL), or a VA streamline.
  • Credit Score – Credit score requirements vary by lender and your type of mortgage. In general, you’ll need a credit score of 640 or higher for a conventional mortgage refinance. Most lenders currently require a credit score of 660 or higher for government programs.
  • Refinancing Costs – Just like when you purchased your first home, refinancing includes closing costs. From appraisal fees to title fees, expect your home refinance to range from 2% to 6% of your loan amount. Prior to refinancing, it’s important to see how much you will owe in closing costs compared to how much the refinance will save you over time.

What to Expect During the Refinancing Process

Once you’ve looked over the financial factors of applying to refinance, it’s time to get the ball rolling. Refinancing shares some similarities with buying a home, but it’s typically far less complicated. When you’re ready to refinance, you can expect these general steps in the process:

Applying for a Refi

When you’re ready to start the process of refinancing, you’ll apply for a loan with your lender, who will review your income, assets, and other financial information before approving it.

Locking in Your Rate

You’ll have the option to lock your new interest rate to keep it from changing during the process. Rate locks can last between 15 to 90 days.

Beginning Underwriting with Your Lender

During the underwriting process, your lender will verify your provided financial information before taking the refinancing process further. Additionally, they will have a licensed appraiser visit your home to appraise its value.

Closing the Deal

After they’ve completed underwriting, your lender will send you an initial closing disclosure, which contains the numbers for your new loan. After reviewing the details, you’ll sign the document and return it to your lender. Generally, three business days later, you will sign all your official closing documents. Remember, when refinancing your primary residence, it is a federal law to allow you an additional three business days to ensure this loan is right for you. If not, you have the right to cancel the transaction during the three-day rescission period.

Landmark Can Help You Refinance Your Home

If you believe refinancing your home is the best option for you and your family, Landmark National Bank can help you chart this new territory. As one of the top lenders in Kansas, our team of home loan specialists is dedicated to helping you find the refinancing solution that best fits your needs.

We know how valuable your time and money is to you, which is why we always strive to keep costs low and make the refinancing process as easy as possible. Discover how Landmark can help you plan for the future of your home today.