Refinancing involves replacing an existing loan by paying it off with a fresh one. Such an act usually costs somewhere between 3% and 6% of the loan’s principal amount, along with application fees, title search, and an appraisal. Since refinancing is a big decision to make, understanding whether this move could actually save you money is essential. So, the following reasons will help you know whether youn should consider mortgage refinancing.
Lower interest rates
Keep an eye out for lowering mortgage refinance interest rates in the market, and just when the rates drop, you can consider refinancing to pay significantly less in monthly payments. Today, the norm is that if mortgage refinance can give you even 1%-2% in lowered interest rates, it is a viable idea for a homeowner.
Shortening the loan term
As you refinance due to the change in mortgage refinance interest rates, you can even choose to reduce the loan term. Instead of paying a mortgage for 30 years, you can even half that time if the change in interest rate is significant. Keep your calculator handy and get a deal that will get you out of mortgage payments sooner.
Adjustable-rate mortgage (ARM)
In case of a forthcoming significant rise in interest rates, mortgage refinancing is a good move as you can choose to opt out of ARM and turn to a fixed-rate mortgage. This move reduces the risk of paying higher interest due to market fluctuations and increase your monthly payments. But rest assured there is a fixed interest rate that helps you keep your finances checked and secure.
Some homeowners refinance to cash out the equity in their homes. This equity is used for major expenses like home remodelling or a child’s college education. While this move may seem ideal at the time, refinancing also means deciding on mortgage terms. For some homeowners, this decision can keep them from getting out of debt and compel them to continue paying mortgage for several years ahead.
Changing ownership rights
Refinancing is an opportunity for any homeowner who wants to make a change in documents related to borrowers’ names on the loan agreement. If the house is bought by spouses who are now divorced, friends who are no longer in partnership, or any other two entities who need a name removed from the borrower’s list, this is an opportune time for them to put in those changes.