So, you’re thinking about refinancing your Michigan home? That’s great! Now, let’s talk about the different ways you can do it. There are two main types of refinancing that most homeowners in Michigan choose: Rate & Term Refinance and Cash-Out Refinance. Understanding the difference can help you decide which one best fits your goals.

1. Rate & Term Refinance: Focusing on Your Loan Itself

Think of a rate and term refinance (also known as a limited cash-out refinance because you can get up to the greater of 1% of the new mortgage amount or $2,000 in incidental cash back), as hitting the “reset” button on your current mortgage, but keeping the amount, you owe roughly the same. The main goals here are usually to:

• Get a Lower Interest Rate: If interest rates in Michigan are lower now than when you got your original loan, you might be able to snag a new loan with a better rate. This means lower monthly payments and saving money on interest over the life of the loan.
• Change Your Loan Term: Maybe you want to switch from a 30-year loan to a 15-year loan to pay it off faster (and pay less interest overall). Or perhaps you need a lower monthly payment and want to extend your loan term back to 30 years. A rate and term refinance lets you adjust this.

Think of it like this: You have a pizza (your current loan). With a rate and term refinance, you’re ordering the same size pizza but maybe getting a discount (lower rate) or slicing it into fewer or more pieces (different term).

How to avoid resetting your 30 year clock: If you have been in your current mortgage for let’s, say 3 years, refinancing into a 30 year again means you are wasting 3 years of heavy interest payments and looking at a 27 year term, in this example will save a significant amount of interest

Who might this be good for in Michigan?

• Homeowners who want to lower their monthly payments without taking out extra cash.
• People who want to pay off their mortgage faster and save on long-term interest costs.
• Those whose credit score has improved, potentially qualifying them for a better interest rate.

2. Cash-Out Refinance: Getting Extra Money

A cash-out refinance is when you take out a new mortgage for a larger amount than what you currently owe. You use part of the new loan to pay off your existing mortgage, and then you get the leftover money in cash.

Think of it like this: You have a pizza (your current loan). With a cash-out refinance, you’re ordering a bigger pizza. Part of the new pizza pays for the old one, and the extra slices (cash) are yours to use.

What can you use the extra cash for?

• Home Improvements: Finally renovating your kitchen in your Novi home or adding that deck you’ve always wanted.
• Debt Consolidation: Paying off high-interest credit card debt or other loans.
• Other Big Expenses: Maybe helping with college costs or other significant needs.

Important things to keep in mind with a cash-out refinance:

• You’ll owe more on your mortgage: This means higher monthly payments and more interest paid over the life of the loan compared to just refinancing the existing balance.
• Lenders look closely at your Loan-to-Value (LTV): This is how much you owe compared to your home’s value. You’ll typically need to have a good amount of equity in your home to qualify.

Who might this be good for in Michigan?

• Homeowners who have significant equity in their homes and need funds for specific purposes.
• People wanting to consolidate high-interest debt into a potentially lower-interest mortgage (but be mindful of the long-term impact).

Which option is right for you?

The best choice depends on your individual financial situation and goals. Do you primarily want to save money on your monthly payments or pay off your loan faster? Or do you have a specific need for cash?

Ready to explore your refinance options in Michigan? As a mortgage lender right here in Metro Detroit, I can help you understand which type of refinance makes the most sense for you. Contact me today for a personal discussion and to explore the current rates and terms available. Let’s work together to find the best refinancing solution for your Michigan home.