What Is a Refinance?
A refinance is when you replace your current home loan with a new one—similar to trading in a car for a newer model. The new loan pays off the old loan, and you start fresh with updated terms.
There are two main types of refinancing:
Rate-and-Term Refinance:
This option allows you to swap your higher-interest loan for a lower-interest loan. Your balance usually stays the same, though you might add a little to cover closing costs. This is often chosen when interest rates drop, when your home value increases, or when you qualify for a better loan. The goal is simple: lower monthly payments and less interest over time.
Cash-Out Refinance:
This option increases your loan balance, giving you cash back at closing. People often use this money for debt consolidation, home improvements, or even long-term financial planning. While the new loan’s interest rate may be higher, the overall “blended” rate can often be lower if you pay off high-interest debt with the cash you take out.
What’s My “Blended Interest Rate”?
One of the most overlooked factors in refinancing is your blended interest rate. This is the weighted average interest you pay across all your debts.
Here’s the simple formula:
Total Interest on All Debts ÷ Total Loan Balances = Blended Interest Rate
For example, even if your new mortgage rate is slightly higher, your blended rate may drop if you use cash-out funds to eliminate credit cards or personal loans with much higher interest. That’s why it’s smart to run the numbers with a professional before making a decision.
What Will I Do With Extra Monthly Cash Flow?
Lowering your rate or adjusting your term often creates more breathing room in your monthly budget. But the real question is: what will you do with that extra cash flow?
If you redirect it into savings, investments, or even back into your mortgage, the long-term financial impact can be powerful. On the other hand, using it to make your lifestyle more affordable can give you peace of mind and stability.
Your mortgage is likely your largest debt, and your home is likely your largest investment. That’s why it’s wise to review your home equity and cash flow situation at least once a year.
📩 Contact me for a complimentary refinance and equity review—I’ll help you see whether refinancing could create more wealth and financial freedom for you.