Can Refinancing a Home Mortgage Offer Advantages?
Homeowners choose to refinance their home mortgages for a wide range of reasons, some more logical than others. But for those who choose to refinance for the right reasons, there can be some very clear and distinct advantages of doing so.
If the interest rate has dropped to a point where you are considering refinancing your home loan, then here are six clear benefits that can come from making this decision.
#1: You Can Save Money Every Month
All it takes is an interest rate that is one percent lower than what you’re currently paying for a refinance to provide you with a sizable savings every month. Now think about what you could accomplish with having more money in your bank account at the end of the month. You can let the savings pile up, put more money toward your retirement, pay off high-interest credit card debt, or plan a family vacation this year.
#2: You Can Pay Your Home Off Earlier
If you’re currently stuck in a 30-year mortgage, then refinancing into a new loan with shorter terms will allow you to pay off your home much quicker. For instance, if you can get a lower interest rate, you may be able to pay your loan off in 20 years with no increase in payment. Or, you can pay a little more per month than you are now and have your home free and clear in just 15 years.
#3: You Can Get Rid of Private Mortgage Insurance
If you weren’t able to put at least 20% down on your original home loan, then you are most likely paying a fee for private mortgage insurance (PMI), which is included in your monthly mortgage payment. The amount of your PMI fee is based on the amount of your loan, so it can be as high as a couple of hundred dollars per month. But if you have more than 20% equity in your home now, then refinancing your mortgage can give you the opportunity to remove this added expense, thus saving you even more money.
#4: You Can Lock In a Fixed Interest Rate
If your original home loan has an adjustable-rate and you are nearing your rate adjustment period, then refinancing the loan into one with a fixed rate can help you avoid a sudden increase in both your rate and your monthly payment. By refinancing into a fixed rate loan, you will also enjoy the peace of mind that comes with knowing exactly what your monthly mortgage payment will be every month until your loan is paid off.
#5: You Can Improve Your Home with Updates and Repairs
If you have lived in your home for a while, then certain things may need to be repaired or replaced, or you might want to update the home with a renovation or addition. If you have equity in your home, then refinancing your mortgage loan using a cash-out refinance can provide you with the money you need to improve your home instead of it coming out of your wallet or using high-interest credit cards to finance it. As a side bonus, any improvements you make will also increase your home’s market value, which will further increase your equity.
#6: You Can Refinance With a Major Lender
If you had credit issues when you originally bought your home, then odds are you probably had to use a specialty lender to obtain a mortgage, and this most likely has you paying higher interest rates and other loan-related fees. But if those credit problems have been resolved and your credit score has improved significantly, then you may be able to refinance your mortgage through a major lender. This will usually provide you with a lower interest rate and better quality services.
No matter what your reasons are for wanting to refinance your mortgage, there are plenty of options available that can provide you with the results you’re looking for. The key to success is choosing a lender that is best suited to provide you with the type of loan you’re interested in. So, do your due diligence and research lenders before you start. Check your credit and get all the required documents in order. The more you get out of the way early, the faster you’ll be able to reap the rewards of refinancing.
