Refinancing mortgages has become commonplace these days. At one time, the first mortgage was the only one that you maintained. However, as interest in real estate investment and the increased use of credit cards by consumers have led to more debt, refinancing has become a popular option for homeowners trying to get out from under. Here are a few of the reasons why people consider refinancing their home mortgage.
1. Lower interest rate. Interest rates can be a killer, especially if you have an adjustable rate mortgage. You are okay for the first three or five years but when the rate first adjusts, it is startling. Combine that with rising property taxes and you can add $200 to your mortgage from one month to the next. Refinancing when the rates are lower will lower your monthly payment and free up cash for other things.
2. Cash payout. You may want to use some extra money to pay off credit cards or to put towards a new car. You have built up equity in your home but you don’t need that much money. Maybe you need $15,000. When you refinance, the amount you can receive is equal to the difference between the amount that you have paid into your mortgage and the new appraised value of the home. You can get that $15,000 and probably at a better rate than the initial mortgage.
3. Shorter loan term. Most people go for the 30-year loan term. The interest rates are good and the payments are lower. If you have a fixed rate loan, the payments will stay the same for the life of the loan. What is typically our largest source of debt? It is our homes. People with extra money may want to get that home loan paid off quickly. Refinancing to a lower term mortgage, say a 15-year mortgage, will lower the interest you pay on that house by almost fifty percent. Also, if you’ve been paying on your home for ten years, with the new term you will have the house paid off five years sooner than you would have with the original term.
4. Higher credit rating. If your credit was not so good when you first borrowed money for your home, you may have had to get an adjustable rate mortgage with a slightly higher interest rate. Five years later your credit may have improved. As such, you could now qualify for a fixed rate loan. Fixed rate loans offer stable monthly payments and lower interest rates. Even with fixed rates, choose the right time to refinance based on the market. For a steady payment, you want to get the lowest interest rate that you can lock into.
There are many reasons to refinance a home loan. Consider your reasons and then look at your options.