If you have been paying a mortgage for a couple of years, the cost of the monthly payments may be higher than you want to pay. Fortunately, there is a way to get round this situation to get a better mortgage. The process of getting a new mortgage to replace an existing one is known as refinancing. Instead of getting a completely new mortgage, you can create a new loan with better terms and interest rates. If you have a perfect credit score, refinancing can help you to convert your variable loan into a fixed loan so that you can benefit from lower interest rates.
Many homeowners are choosing mortgage refinance to meet their financial obligations. Refinancing your home can prove to be beneficial especially in an unstable housing economy. If making your mortgage payments is causing you to have financial difficulties or it is tougher than expected, you should consider this option. It is, however, important to know that refinancing can be risky for someone with too much debt or a less than perfect credit score. Before you choose this route, it is important to understand what it entails.
Refinancing has its benefits
There are several benefits of refinancing and they include getting lower interest rates and reducing the terms of the loan. You can end up paying thousands of dollars less in interest and when you refinance your property, you can end up paying it off much faster. This means that you can retire much sooner than you thought! The process may take some time but it is worth it when you start reaping the benefits. Knowing some of the reasons why people choose to refinance will help you to determine if you should consider refinancing your mortgage.
1. Shorten the loan term
Shortening the term of your loan is one of the best arguments for refinancing. If you have a 30-year mortgage, consider refinancing. The current low interest rates make this a great time to take advantage of this option and a 15-year mortgage might actually end up being cheaper. You can use a mortgage calculator to find out what the new payment could be. If the new estimated payment sounds attractive, consider talking to a mortgage expert about your options. Remember that your financial position is likely to have changed since you started paying the mortgage and the new rates will serve you better.
2. Lower your interest rate
Another good reason to refinance is to reduce or lower the interest you are currently paying. With interest rates at a record low, getting a new rate is a no-brainer. If you are currently paying high interest rates, you can secure a 15-year loan that you can pay more comfortably. Taking the time to refinance will end up saving you thousands. Talk to a mortgage broker to find out the documents you need and the paperwork to be filled out for refinancing. It may seem like too much effort but the time you spend is worth it for the savings you will make.
3. Lower your loan payment
Refinancing your mortgage to lower your loan payment is a smart financial move. The lower interest rate can drastically reduce, which will save you a huge amount in interest. By lowering your loan payment, you could free up money each month that you can save or invest. It is important to realize that refinancing as a way to lower your payment can end up increasing the term of the loan, but it may make sense in your specific situation. A good reason to reduce your loan payment is if you have new expenses such as growing your family or paying for college.
4. Change from ARM to fixed loan
Changing your loan type is another good reason to refinance. If you have an adjustable rate mortgage, you can convert it to a fixed rate loan by refinancing. You need to know that while current interest rates may be low; this situation is not likely to continue indefinitely. Locking in the current low fixed rates can help to protect you from future rising interest rates. A good reason to move to a fixed rate loan is the fact that it is easier to budget and plan for the fixed payments.
5. Cash out your home equity
Refinancing is also useful as a way to cash out the home equity. While this may not be for everyone, cashing out your home equity can be beneficial in some circumstances. If you are planning to start a business or to invest in rental property, refinancing can be a great financial move. By cashing out some of the home equity, you can get the financing you need without going further into debt. If you are responsible about managing your debts or you have a good plan for the money, you should go ahead and refinance.
Refinancing can help you to meet your goals but you need to establish what these goals are. Take all the factors into consideration and talk to a mortgage expert before making the final decision.