Refinancing Can Be Good For Some Homeowners
Refinancing a mortgage means paying off an existing loan and replacing it with a new one. There are many reasons why homeowners refinance: lower interest rates, consolidate debt, reduce or increase your loan term, etc. It’s important to have a clear financial objective in mind so that you’re able to choose the most appropriate loan. Ultimately, the decision is up to you to decide when it’s best for you to refinance, based on your individual financial situation.
Here are five major reasons why you should refinance your mortgage:
- Lower Interest Rates: If you want a lower interest rate then refinancing is the way to go, assuming mortgage rates are lower now than when you took out your original mortgage. The classic rate and term refinance allows homeowners to reduce their interest rate so they can enjoy a lower monthly payment. Reducing your interest rate not only helps you save money, it also increases the rate at which you build equity in your home, and it can decrease the size of your monthly payment.
- To Reduce Loan Term: There is a huge benefit to refinancing from a 30-year fixed into a shorter term loan such as the 15-year fixed. These shorter term mortgages also come with lower interest rates so you can pay your mortgage off a lot faster without potentially breaking the bank, depending on the rate you had and where rates are today.
- Drop PMI Rates: If you have a low enough LTV you can get rid of private mortgage insurance by refinancing your loan, If your home increased in value or you paid it down enough to get rid of the PMI, refinancing might save you a lot of money.
- Consolidate Other Debt: Another typical reason to refinance is to consolidate credit card debt and other higher-APR debt. Mortgages tend to have the lowest interest rates around, and they allow you to pay the debt very slowly, which makes it easier to manage. Just be careful not to go on a spending spree because you still haven’t paid off the old debt yet.
- Change Loans: It could also be that you started out with a loan you weren’t too fond of because it was the only way to qualify. But now that you’re a better borrower you’ve got more options to choose from. Instead of paying mortgage insurance for life on an FHA loan, you can refinance your mortgage into a conventional loan instead, thereby removing the lifetime MI and potentially getting a lower interest rate at the same time.
Deciding on when to refinance your mortgage will depend on the circumstances of your situation: how long you’ll be in the home, what your financial goals are, whether interest rates are dropping, etc. It’s up to you to decide if refinancing is right for you.