Refinancing a mortgage is a popular option for many homeowners, but is it right for you?
There are several factors to consider when refinancing a mortgage, and the pros can be really appealing. But before we deep dive into the benefits, let’s start with the basics. What exactly is refinancing? Simply put, refinancing is essentially getting a new mortgage to replace the original. Most people refinance to secure a better interest rate or to shorten the term of their mortgage, but the benefits don’t stop there. Here, we’ll get into the many pros of refinancing and when to take advantage of them.
Simply put, refinancing is essentially getting a new mortgage to replace the original.
1. Lower monthly payments
If you had the chance to lower your monthly mortgage payment with limited risk, you’d take it, right? A lower monthly payment is probably the biggest benefit of refinancing a mortgage, but it only works if your new mortgage rate is lower than your original rate. Otherwise, your payment could go up. If you’re interested in refinancing, be sure to keep an eye on the most current rates. Even a small difference in percentages can have a sizable impact on your monthly payment. In addition to decreasing your monthly payment amount, reducing your interest rate can help you save money in the long term and build equity in your home faster.
2. Consolidate debt
Your debt situation is one of the main factors to consider when refinancing a mortgage. If you have debt in multiple areas, refinancing could help you consolidate it. Using this method, you can replace multiple loans with one loan, leaving you with one convenient monthly payment. If you’re going to have debt, you might as well make it as simple as possible to deal with, right? The key here is not to accrue new debt once the refinancing has consolidated your old debt.
3. Get cash on hand
In some cases, a borrower may be eligible for a cash-out refinance. This type of refinance allows you to tap into your home’s equity and turn it into cash. Borrowers who refinance often use this money for remodeling or landscaping projects. How does it work? Refinance your existing mortgage into a new one for a larger amount and pocket the difference (minus closing costs). But be advised—lenders usually limit the loan amount of this type of refinance to 80 percent of your home’s equity.
4. Pay off your mortgage faster
If you plan on staying in your current home for a long period of time, it may be a good idea to refinance your mortgage to obtain a shorter term. For example, you may want to refinance your 30-year loan into a 15-year loan. Although your monthly payments will increase, you’ll save money on your overall interest payments and own your home, free of mortgage debt, in half the time. Use our refinance calculator to see how much time or money a refinance could save you!
5. Gain stability
Most people don’t like surprises when it comes to money. If you’re one of those people who like to know what’s coming ahead of time, refinancing your mortgage could be a perfect fix. One of the pros of refinancing is it can be a great solution for borrowers who are struggling with financial stability. If you started with an adjustable-rate loan, refinancing into a fixed-rate loan can help you make steady payments—especially if you are concerned with inflation and the resulting possibility of higher monthly payments.
Ready to Refi?
If it’s been a while since you got your original home loan and the benefits we listed sound good to you, it could be worthwhile to consider looking into refinancing your mortgage. As with any big financial decision, it’s important to do your research thoroughly in order to reach the best choice for yourself and your family. If you have any questions about refinancing or you’re ready to move forward with the process, contact us today and we’ll help you get started!
Do you have any experience refinancing a mortgage? We’d love to hear about it. Share your experience with us on social media!