30-year fixed loan.
By refinancing to a 30-year fixed mortgage, you will at least avoid the risk of future rate increases. But a longer loan will mean more interest payments if you stay in your home for the full period.
40-year fixed loan.
This loan may lower your payments significantly. But the extended pay period will cause the equity in your home to build up at a slower rate and you may finish paying off the loan deep into retirement.
Interest-only loan.
By refinancing to a loan that allows you to pay only the interest due for the first 10 years, you’ll reduce your monthly payments. But your home’s equity will build slowly, and interest rates could be higher after the 10-year period elapses. So approach this type of loan (as well as the next one on our list) with caution.
Option ARM.
While the introductory rate will likely be very low with this type of adjustable rate mortgage, your loan balance will wind up growing because your payments won’t come close to covering the true underlying interest charges
Consider refinancing your home equity line
If you have a home equity line of credit (HELOC) and interest rates are favorable, you may want to consider refinancing it.
WHAT TO DO:
If your credit score is 720 or higher, look at your HELOC contract to see how your interest rate was calculated. You may be able to lower the rate charged on the borrowed amount by refinancing.
