Refinancing a home may be a means to:
- Reduce your monthly payment
- Access the equity in your home for cash
- Convert to a fixed rate from an adjustable rate mortgage
Reduce Your Monthly Payment
Refinancing to a lower rate mortgage means lower monthly payments for loans with the same term.
Most refinances occur when interest rates fall, and customers take advantage of this by refinancing to a lower fixed rate mortgage. Fixed rate mortgages are viewed by most as a lower risk mortgage, maintaining one rate even if the market fluctuates upward and rates begin to rise.
But interest rates aren't always on a downward trend. You can still reduce your monthly payment by refinancing to a lower rate adjustable mortgage for short-term savings. This may be an ideal option especially if you don't anticipate staying in the home past the adjustment term.
Access the Equity in Your Home for Cash
The equity you have in your home increases each time you make a home loan payment. By refinancing, you can free up some of this money for other purposes. You may need it fto fund a child's college tuition, to make home improvements or to invest in a second home.
The equity in your home may also be used for debt consolidation. Generally, the interest on home loans is tax-deductible while the interest on other types of loans is not tax-deductible. You may save money if you consolidate credit card payments, car loans, and other loans by refinancing your mortgage. In this situation, your debts have been restructured under your mortgage and the interest may be tax-deductible. (Consult your tax advisor regarding the potential deductibility of interest under this plan.)
The cash you are able to receive depends on the equity you have available and the refinance product you choose. Contact a mortgage consultant for more information on options available to you.
Convert to a Fixed Rate
An adjustable rate mortgage is a product that allows you to enjoy home ownership with low monthly payments. But the possibility of increasing rates and payments can be worrisome.
To reduce the uncertainty of future rates and payments, you might want to consider switching to the security of a fixed rate loan. Fixed rate mortgages are viewed by most as a lower risk mortgage by maintaining one rate for the duration of the loan. Even if the market fluctuates upward and rates begin to rise, you will feel secure in knowing your rate will remain constant.
This information is intended to help you ask the right questions when considering a possible refinancing of your loan. But before you commit to any specific loan, contact your local participating bank agent or call toll-free 888-556-3498.
State Farm Bank, F.S.B., Bloomington, Illinois ("Bank"), is a Member FDIC and Equal Housing Lender. NMLS ID 139716. The other products offered by affiliate companies of State Farm Bank are not FDIC insured, not a State Farm Bank obligation or guaranteed by State Farm Bank, and may be subject to investment risk, including possible loss of principal invested. The Bank encourages any interested individual(s) to submit an application for any product(s) offered by the Bank. We also encourage you to obtain information regarding the Bank's underwriting standards for each type of credit or service offered by visiting statefarm.com or by contacting the Bank at 877-SF4-BANK (877-734-2265). Callers who are hearing or speech impaired should dial 711 or use a preferred Telecommunications Relay Service. To apply for a Bank product, you may also see your participating State Farm agent.