Refinancing your mortgage means you pay off the mortgage you have now and get another one. There are a lot of good reasons for refinancing a home, and getting a loan with a lower interest rate so your monthly payments are also lower is one of the best.
The Most Common Reasons to Refinance
• Shortening the term of your mortgage. Without changing your monthly payment by much, with a lower interest rate you’ll be able to get a shorter term on your loan, which will save you a lot in interest payments.
• Switching to an adjustable-rate or fixed-rate mortgage. If you have a fixed-rate mortgage, and the interest rates drop, you are paying more for you loan that you need to. If you refinance, you can change to an adjustable-rate and get the lower rate. The opposite is also true. If you have an adjustable-rate loan and the interest rate has gone very high, you can change to a lower fixed-rate loan. A fixed-rate loan at a low interest rate is your best option because you don’t have to worry if the interest rates rise.
• Accessing equity to get a large amount of cash for big expenses. These expenses may include college tuition, home remodeling, paying off debt or taking a vacation. The money can be spent for anything, but the homeowner should be careful about taking cash for large expenses. Home remodeling is considered good because it actually increases the value of the home. Paying off high-interest debt is a good idea if the homeowner doesn’t immediately incur more debt once they have the available credit. If they simply get into more debt, it could result in bankruptcy.
A Good Financial Move
If you can reduce your mortgage payments and shorten the term of your loan, or build equity more quickly, then refinancing is a good move. You should carefully consider your options and ask yourself how long you plan to continue living in your current home, and calculate how much you’ll save by refinancing. Remember to include any fees charged by your current mortgage lender. If you plan to move in the next few years, refinancing may not be your best option.
Homeowners should take the time to define their financial situation and objectives. When they have a clear idea of these, they can look into refinancing as a useful tool for improving their finances.