What does refinance mean? The basic meaning of refinancing is to replace your existing mortgage with a new one. Your bank pays off the old mortgage with the new one, possibly releasing some cash as well. As always we advise to consult with a licensed Long Island mortgage broker to confirm this content.

Reasons for Refinancing

There are several reasons for wanting to refinance, the most common ones are as follows:

  • Getting a better interest rate. You may have taken out your mortgage a few years ago, and interest rates were higher then. Perhaps they have now fallen, or another lender has some better deals.
  • House renovation. You want to do some work on your house, such as an extension or new windows, for which you don’t have the available funds. You may be able to release some equity by refinancing.
  • Pay off other debts. If you have other debts with higher interest rates than your mortgage, it may be prudent to pay them off by refinancing.
  • Move to a longer-term loan. You may wish to do this if you are struggling financially, as it will reduce your monthly payments. You may also want to shorten the term to reduce the overall amount you are paying off.
  • Your borrower profile has improved. Perhaps your credit rating wasn’t as good when you first obtained your mortgage. Now that you have been paying it off for a while, better deals may be available to you.

When Can you Refinance?

The primary qualification for refinancing is usually how much equity is in your home, i.e., how much more your house is worth than the outstanding amount on the mortgage. If you owe more than the value of your house, it is unlikely that you will be able to refinance. Also, if you have a low credit score, this may make it difficult to obtain a new loan.

Will Refinancing Affect Your Credit Score?

Refinancing will cause your credit score to dip. However, as you pay off a new loan, the effect will be minimal.