While it's not a great time to refinance due to rising interest rates, you could still consider refinancing if you want to tap your home's equity. Here's how refinancing works and what options might be available to you.
Refinancing a loan allows a borrower to substitute their existing debt obligation with one that has more favorable terms. Through this process, a borrower takes out a new loan to pay off their current debt, and the updated agreement replaces the terms of the old loan. This enables borrowers to redo their loans for a lower monthly payment, different term lengths, or a more convenient payment structure. Most consumer lenders who offer conventional loans also offer refinancing options. However, refinancing loans tend to come with slightly higher interest rates than purchase loans for products like mortgages and car loans.
Consumers generally seek to refinance certain debt obligations to obtain more favorable borrowing terms, often in response to shifting economic conditions. Common goals of refinancing are to lower one's fixed interest rate to lower payments over the life of the loan, to change the term of the loan, or switch from a fixed-rate mortgage to an adjustable-rate mortgage (ARM) or vice versa.
Borrowers may also refinance because their credit profile has improved, because of modifications to their long-term financial plans, or to pay off their existing debts by consolidating them into one low-priced loan.
Refinancing requires work, so is it worth the extra paperwork and costs? On the other hand, there are some great reasons to invest the time and money in a refinance:
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