Anyone who wants to stretch out payments on an existing mortgage would love the idea of getting mortgage refinancing. Mortgage refinancing will help save every home owner a substantial amount of cash during the remaining life of the home loan. Savings factor being considered, here are specific reasons to get mortgage refinancing.
When the current interest rate offered by a mortgage refinancer is lower than the rate you used to be paying on your existing mortgage, it follows that refinancing would also lower your monthly payment. Let us do the math. In case you still have a remaining payable of $200,000 on your existing loan with an interest rate of 6% for the next 20 years, your monthly amortisation will approximately be $1,641. If the mortgage refinance offers you a rate of only 5%, then you will only be paying a monthly amount of about$1,528. That means you will have a savings of $113 per month, $1,356 per annum and $27,120 for the 20-year life of your loan.
In another scenario, a mortgage refinancer may also offer you to stretch out your mortgage payment. Meaning to say, instead of paying an existing 20-year loan, you can pay it in 25 years instead. Definitely, this will result to allowing you to use the amount you save into other endeavours like paying for your child’s tuition or buying a new item that is much-needed in your home.
With a mortgage refinance you can also shorten the life of your loan. In this case, you may have to pay a higher monthly amount especially if you will cut the loan term by half. Your 20-year loan will now become a 10-year loan and is a good thing to resort to especially if you feel that you can make your monthly mortgage payment higher than the usual amount you have been paying. Despite paying higher monthly payments, you will be able to repay the entire amount of the loan quickly. This will then translate to savings that will amount to up to thousands of dollars on interest payments.
Sometimes, your existing mortgage is under the adjustable-rate mortgages. These are considered beneficial in minimising your monthly amortisation only during the first few years of the mortgage. As soon as the mortgage rates rise, then your monthly payments will also be affected. There is a direct relationship between the interest rate and the monthly amortisation as we all know. When the interest rates increase, the amortisation increases as well.
With a mortgage refinance, you can shift to fixed-rate mortgages instead. It is true that you may need to pay a higher monthly amortisation at first especially when compared to the adjustable-rate mortgage type. However, that payment will never change during the term of the loan which means you need not pay a higher amortisation even when interest rates in the market will increase.
Mortgage refinancing will always help you find ways in which you can save money whilst making monthly amortisations. That makes it a very flexible option. Above, you have seen that you can change your mortgage type from adjustable-rate mortgage to the fixed-rate option. In this particular scenario, you will see that you can also make the shift the other way around.
Yes, shifting to the adjustable-rate mortgage from an existing fixed rate on your mortgage will also be beneficial. This is especially so if you plan to sell your home in the next few years. The rate in this case can be lower until such time you finally sell your house. Of course, the real savings in here is because short-term mortgage rates are definitely lower when compared to long-term rates.
In mortgage refinancing, you can also take cash out specifically if you have an existing equity in the home. The cash out can be used for different purposes. For one, you can use it if you plan of making a large purchase and you do not have the funds to do so or sometimes even if funding options are available, the refinancing rate is a better option. In another, you can also use the cash to repay your other debts. Other ways by which you can use cash out from the refinancing are for home improvements, property investments, and even medical bill payments.
Mortgage refinancing is indeed one great option you should consider if you want to save money on your existing mortgage or if you want to use money to finance some other projects provided you have equity in your home. For more about how this works, feel free to browse our pages.