Rate/Term Refinance versus Cash-out Refinance

by Jessica Brita-Segyde

Two basic home refinance options exist in today’s marketplace: Rate/Term and Cash-out. Of course, within each of those options a bevy of sub-options presents itself and there are many factors to consider when choosing the right loan product and lender. Ruoff’s top-notch loan team is always ready to help you navigate the marketplace to determine if and when a refinance is in your best interest. You can contact a loan professional any time for an in-depth analysis of your options. In the meantime, here are some questions to ask yourself as you consider refinancing your current mortgage:

Can I get a better rate?

If you obtained your existing mortgage in a high-rate economy or at a time when your credit was less than stellar, you may qualify for a better rate. In this case, it makes sense to inquire about a rate/term refinance. A cash-out refinance might also result in a better rate, but this Cinderella story is not common. Typical motivations for a cash-out refinance will be discussed later in the blog.

Does it make sense to shorten my loan term?

If the increase in payment is palatable, now is the time to consider shortening your loan term. A rate/term refinance is an opportunity to switch to a 15-year term if you had previously been paying on a 30. This will result in a lower rate and faster principal buy-down. A shorter loan term could be an attractive option to homeowners who plan to retire in their current location.

OR…Does it make sense to lengthen my loan term?

It might make sense to start over with a new 30-year loan term to lower your payments. This option could provide some financial relief to individuals or families who expect their monthly financial obligations to increase soon. For example, you have a high school graduate moving on to college and mom/dad will be footing the tuition bill. Extending the loan term also gives homeowners more control over their capital if they see an investment opportunity other than their home.

In summary: The primary reason for obtaining a rate/term refinance is a better rate, with an extended loan term coming in at a close second.

Is now a good time to consolidate my debt and/or improve my home?

This blog is about to take an exciting turn. We’re ready to discuss cash-out refinancing and how it could benefit you! Ruoff has a wealth of experience in this area and can offer solid advice regarding if, when, and how to refinance your current mortgage.

According to Clint Morgan, Senior Vice President and Chief Lending Officer, many borrowers who choose a cash-out refinance do so to finance a home remodel.

“For the past several years, home values have been on the rise,” said Morgan, “and homeowners may want to refinance and reinvest their home’s equity into remodeling projects.”

Morgan has also observed that the demand for cash-out refinances remains steady even when the real estate market slows. This is because home equity can be a sensible choice for consolidating debt.

“Homeowners might want to pay-off credit cards or other bills and can usually get a better interest rate with a home refinance than with other debt vehicles,” said Morgan, “And other times they may be looking for a lump sum distribution not tied to any specific debt. We can do that as well.”

How much is my house worth?

A cash-out refinance will always require an appraisal, and a rate/term refinance might require one as well. Any member of Ruoff’s experienced loan team can advise on whether your refinance will necessitate a new appraisal. Your home’s value drives many factors in the loan process including the amount you can borrow, the amount you can cash-out, and the rate your lender can offer.

Valuation is an area where Ruoff’s decades of underwriting and secondary market experience benefit the customer. The loan team is trained to order appraisals only when necessary, thereby saving borrowers from paying a potentially unnecessary fee. And one more thing…even when conditions do call for the expertise of an onsite appraiser, Ruoff’s time to close still averages well under 30 days.

Is It Time for Me to Refinance?

Maybe. Every borrower, every home, and every financial plan are unique. Contact the Loan Team at Ruoff today to find out if a refinance is the right choice for you.

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