by Michael Mergell, Managing Broker RE/MAX Ability Plus-Fishers
Refinancing a mortgage loan basically means that the homeowner is changing mortgage payments and terms of the loan to new terms and monthly payments. Homeowners refinance mortgage loans for several reasons. Mortgage payments are one of the largest monthly expenses for any family. Reducing the payments gives extra cash to the homeowner to manage other expenses.
First and one of the best reasons could be to lower their monthly mortgage payments. Interest rates for home loans change all the times based on economy. If the mortgage interest rate goes down then it may be a financially wise decision for the homeowner to refinance the mortgage loan. This way the homeowner can reduce the monthly payment of the mortgage loan and can have substantial free money to utilize for other expenses.
A second good reason could be to change the financing term from adjustable rate loan to fixed rate loan. Depending on the individual financing condition when people buy real estate they opt for adjustable rate loans which gives flexibility to home owner to pay lower monthly mortgage payments. Adjustable mortgage interest rate is normally tied up with economy and as the interest rate raises the mortgage monthly payments goes up. Adjustable mortgage loans give uncertainty of monthly home payments and homeowners are usually uncomfortable to have that fear. By refinancing the adjustable mortgage loan to a fixed mortgage loan it gives the homeowner some security of having the same monthly payments for the term of the loan.
A third reason, and most common, could be to take out the equity or get line of credit for personal financial reasons. Home renovation, vacation, debt consolidation could be reasons homeowners may want to use equity.
Mortgage Refinancing is a term used for taking another loan to replace the previous one with the same asset as the collateral. Refinancing can be worthwhile, provided you choose the one that is according to your requirements and situation.
Primarily, refinancing is done to reduce monthly payments. Refinancing your mortgage helps you in bringing down the monthly payments either by shifting to the current lower rate of interest prevailing in the market or by reducing the length of the period of payment, or both.
Refinancing lets you benefit from the present lower interest rates of the market. Initially, the interest rates may have been higher than what they are now but that does mean you need to continue paying exorbitant rates. The extra cash saved can be utilized for meeting other expenses.
MICHAEL MERGELL (317) 645-8717 MICHAELMERGELL@REMAX.NET
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