There is no doubt about it, buying a home is one of the most expensive investments you will make in your lifetime. It is most likely the largest payment you make every month, and may be your most valuable financial asset. Whether you obtained your mortgage at a higher interest rate than you would have liked or want to utilize some of the equity you’ve built up over the years, you may be in a perfect position to refinance your current mortgage.
Lowering Your Interest Rate
One of the most popular reasons people look into a mortgage refinance is to lower the interest rate on their loan. Your monthly mortgage payment is directly connected to the interest rate attached to your loan. If there’s been a change in market conditions, or you’ve improved your credit score, you may be able to refinance your mortgage and obtain a lower interest rate. With a lower interest rate comes a lower monthly payment.
Adjusting the Length of the Mortgage
When you originally obtained your mortgage, you were probably given a number of different options regarding its length. Popular choices include 15- and 30-year mortgages. If you’d like to either increase or decrease the length of your mortgage, a mortgage refinance is the way to go. Increasing the length will decrease the monthly payment as it takes the remaining loan amount and stretches it out over more months. While decreasing the length of your mortgage will bring you a lower interest rate, your monthly payment will increase due to the shorter amount of time involved.
Changing from an Adjustable-Rate to a Fixed-Rate Mortgage
Lenders like the adjustable-rate mortgage or ARM. The interest rates change with the market, so your monthly payment can increase or decrease at any time. Their instability can cause you anxiety. If you have one, this is a good reason to look into a mortgage refinance. Refinancing to a fixed-rate mortgage, which fixes your interest rate and monthly payment to a set amount may bring you peace of mind.
Use the Equity in Your Home
If you’ve built up the equity in your home, you may want to consider a mortgage refinance to take advantage of the difference between the value of your home and the amount you currently owe on your mortgage. Many homeowners choose cash-out refinancing to pay for home remodeling projects, a child’s education, or to pay off high-interest-rate credit card debt. If this is something you’re considering, remember that by doing this, you will own less of your home. There are other ways to use the equity in your home without refinancing.
When You Shouldn’t Refinance
There are times when refinancing your mortgage isn’t in your best interest. If you’ve had your mortgage a long time, refinancing won’t be a benefit to you. The longer you make payments on your mortgage, the more you put toward the principle, effectively building equity. When you refinance, you basically start over, and a majority of your monthly payment is put toward the interest.
Another reason to consider skipping a refinance is if your current mortgage has a prepayment penalty. Some lenders may charge a fee if you pay off your mortgage early. When you refinance, you are essentially paying off one loan and taking out a new one. Be sure to check on this before you start the process. If you refinance with the same lender that holds your current mortgage, you may be able to get the prepayment penalty waived.
Refinancing can save you money every month. Before starting the process, it’s important to know where you stand and what you’re getting. If you’re not certain refinancing is for you, take the time to do some research and talk to a financial adviser.
blogarama.com