Does refinancing your home make sense for you? If you’re unsure, you’ve come to the right place. While many think the purpose of refinancing is to take advantage of lower rates, there are several reasons why homeowners choose to refinance. With a little preparation and a push in the right direction, you can have a smooth refinancing journey.
In this guide you will learn what refinancing is and we give you the tools you need to help you make the decision on whether or not you should refinance your home.
What is Refinancing?
Refinancing is the process of taking on a new mortgage and using it to replace your previous one. Taking advantage of lower interest rates is the primary reason many homeowners choose to refinance. While taking on a new rate may help you save money in the long run, there are several reasons and benefits of refinancing.
Here are a few common reasons why homeowners choose to refinance:
Lower your monthly payment. Interest rates fluctuate daily, and you may qualify for a lower rate than the one on your current mortgage. Evaluate how your current interest rate compares to the economic climate, or speak with your lender to see if you are able to qualify for a lower rate.
Convert your home’s equity to cash. Paying your mortgage over time builds equity. A cash-out refinance allows you to use the equity you’ve gained and turn it into cash. This money can be used for several reasons including a retirement plan, purchase an investment property, make home improvements, or cover expenses such as college tuition.
Stop paying monthly mortgage insurance. Refinancing may allow you to tap into your home’s equity to eliminate the need to pay mortgage insurance. Taking on a new loan makes it possible to have a loan program that has no mortgage insurance fees.
Shorten your mortgage term. If you want to pay off your loan in a shorter period, refinancing can help you get a reduced loan term, thus paying off your mortgage sooner. Speak with your lender to ensure that a shorter team is right for you, since this may result in larger monthly payments.
Switch from an Adjustable-Rate Mortgage (ARM) to a Fixed-Rate Mortgage. If you have an adjustable-rate mortgage, refinancing to a fixed-rate loan can lock in a low rate for the life of the mortgage, which may result in significant cost savings. Not only can this result in significant savings, you can rest assured that your monthly payments won’t increase if rates should rise in the future.
Although refinancing has several benefits, there are also a few reasons refinancing may be the wrong decision. Refinancing may not be in your best interest if the current interest rates are higher than the rate you have on your mortgage, the additional fees associated with closing your mortgage are above your budget, or you cannot take advantage of any of the benefits listed above. When in doubt, speak with your lender so you’re positive refinancing is the right move.
The choice is ultimately up to every individual, but there are several ways to make the most of the money you may save if you choose to refinance.
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