Many of us have come across the term “refinancing” or the phrase “refinancing your mortgage,” but have you ever wondered, what is refinance mortgage? What is your understanding of refinancing your mortgage? Well, you save a lot of money or the cost of money if you refinance your mortgage loan. Refinancing a mortgage is replacing your mortgage with a new one by paying off your existing mortgage loan. There are various benefits and advantages of refinancing your mortgage. In simple language, refinance mortgage means replacing and revising the existing terms and conditions of a credit/loan agreement. Herein, we give you five reasons to consider refinancing your mortgage.
Lower interest rates
Obtaining lower interest rates is one of the best and the most common reasons to refinance your mortgage. You can save money if mortgage rates have fallen from the time you’ve taken the loan and converted it into a new home loan. Refinancing not only helps you save money but also, at the same time, helps reduce the monthly payment structure to build equity in your house. For instance, a fixed-rate home loan with a 5.5% of interest rate on a $100,000 home for 30 years has a combined payment of $568. The same loan with a 4.1% of interest rate will reduce your monthly payment to $477.
Lower monthly payments
As you get better mortgage rates. you save on money and monthly payments. Refinancing helps in reducing the monthly payment structure to build equity in your house. When you aim to pay less, you either consider refinancing to lower interest rates or extending your loan term. But extending the loan term has a drawback that you end up paying more interest in the long term. So, for example, you increase your loan term to 30 from 15. Thereby, you will pay less on the monthly payment but end up paying more interest in 30 years.
Shortens the term of loan repayment
Many homeowners consider refinancing their mortgage and have an opportunity to do so when interest rates fall. You refinance the current loan with another loan without much change in the monthly installment. By paying slightly extra every month, the term of repayment of the loan reduces. When you opt to refinance into a 15-year loan from one that lasts 30 years, you tend to pay off the mortgage amount in half time. In this manner, you pay less interest in the due course. Monthly installments of loan repayment usually go up though!
Borrowing money is possible
You can borrow against your home loan with a cash-out refinance to obtain funds for any purpose. People often get a lower interest rate and a cash-out refinance at the same time. When an asset has an increased value on papers, you as a borrower can gain access to that with a loan. This value increases the loan amount but gives the access of cashing it to the borrower immediately while maintaining its ownership. Such a move helps in acquiring the cash influx for repayment of any urgent financial deed.
Switches to a fixed-rate mortgage
Refinancing the mortgage helps you switch and sustain to the fixed-rate loan. Interest rates on adjustable-rate mortgages keep changing and generally go up over the period. Fixed interest rate mortgages remain the same. Refinancing to a fixed-rate mortgage provides you financial stability and predicts future savings by structuring your monthly payments.
The above mentioned are some advantages of refinance mortgage. There are various advantages of refinancing your mortgage, e.g., predicting your costs and savings, and consolidating your debts. But a separate set of disadvantages must be taken into account as well.
