7 Reasons Homeowners Refinance their Home Loans

Justin Kelly
November 18, 2022

There are many reasons a homeowner may look into refinancing their home. Maybe your financial situation has changed or maybe it's due to personal reasons. Either way, the decision to refinance your loan is a big one as it replaces your current loan with a new one. That means that homeowners need to weigh the benefits of a new loan over their current one. To help you decide if this is the right decision for you, we've listed the 7 most common reasons people refinance their home loans.

1. Lower Rates

One of the most common reasons homeowners seek a refinance is for a lower rate. Refinancing your current loan from a higher right to a lower rate will reduce the amount of interest you pay, allowing you to save money in the long run. This is also called a rate and term refinance or rate reduction refinance.

2. Adjustable-Rate Mortgage to Fixed Rate Mortgage

Sometimes the allure of a lower interest rate from an adjustable-rate mortgage is tempting, especially if you think you will only be in the home short term. However, life changes quickly, and sometimes what we thought would be short-term turns into long-term.

If you find yourself in that spot you may want to refinance and pay off the adjustable-rate mortgage for a fixed-rate mortgage with a predictable monthly payment.

While switching from an adjustable rate to a fixed rate mortgage may sound complicated, it's actually just as easy as refinancing any other loan.

3. Balloon Payment

A balloon loan is a short-term loan, often 5-10 years, with smaller earlier payments and significantly higher later payments--particularly the last payment. This is often referred to as the balloon payment which is required at the end of the loan to repay the remaining principal balance.

If the homeowner doesn’t have enough cash on hand to pay the balance, a rate and term refinance can be done to avoid defaulting on the mortgage.

4. Divorce

Many times in divorce settlements one spouse will retain the home. If a mortgage exists that was taken out in both spouses’ names, the final divorce decree can require one spouse to retain the home to either pay the loan off or refinance into their name.

This will relieve the other spouse from any obligations and can be done as a rate and term refinance. In some cases, there is a monetary settlement as part of the divorce and the home can be used to do a cash-out refinance and pay equity owed to the departing spouse.

5. Debt Consolidation

When credit cards and other debts pile up and payments become impossible to keep up with, a homeowner can do a cash-out refinance and consolidate. This will pay off their current mortgage and allow them to take additional equity out of the home to pay off their debts.

6. Home Improvement

Making changes or improvements to your home can be expensive. Many make the mistake of putting these costs on high-interest credit cards which leads to high minimum monthly payments and, potentially, a very long repayment timeline.

Doing a cash-out refinance allows you to have a predictable monthly payment that will include repayment of the principal and interest.

Knowing exactly how much you need to complete your home project is important. Make sure you build a contingency reserve in your total remodel estimates, usually 10% is a good idea. For example, if you have a $100,000 remodel add $10,000 for a total of $110,000.

7. Investment Property

Buying an investment property usually requires a large down payment and expenses for updates and repairs. If you have a primary residence with equity, you can do a cash-out refinance to help cover the costs of buying your new investment property.

Refinancing with CPF Mortgage

CPF Mortgage is a 5-star independent mortgage lender rated by several hundred happy homeowners. We strive to educate and assist our clients in obtaining the best possible rates and purchasing their dream properties.

To learn more about whether a refinance is the right option for you, please contact us through our website or call 727-263-3146. For more tips and insights into the mortgage process, check out our other blogs and videos!

Watch our video on The Road to Refinancing a Home Loan to learn about the process of refinancing your mortgage.

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Christopher Paul Financial, LLC dba CPF Mortgage is a Florida mortgage lender NMLS 222883, Florida state license MLD929, Colorado registered mortgage company NMLS 222883, licensed Tennessee mortgage lender NMLS 222883, and Georgia Residential Mortgage Licensee NMLS 222883. The main office is located at 10710 State Road 54, Ste. C101, Trinity, FL 34655. All loan approvals are credit driven, and all decisions are based on underwriting credit approvals. All rates, terms, and programs are subject to change without notice. Borrowers should consider their options carefully when choosing a loan program.
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