Good Reasons to Refinance
There are many variables that go into refinancing a mortgage. Most commonly homeowners are seeking a lower interest rate. However, there are many more situations that make refinancing your home mortgage a wise decision.
Here are 8 good reasons to refinance:
A lower interest rate is the main reason people refinance their mortgage. A lower interest rate translates to thousands of dollars in savings over the life of the loan and results in a lower payment. The savings from this interest reduction can be used to pay down the principal balance at a quicker rate, invested into retirement or other savings accounts, or even free up cash for household expenses.
Pay Off a Balloon Mortgage
Homeowners who are finding themselves approaching the end of a balloon mortgage may decide to refinance their home. Many do not have the cash to make the large cash balloon payment and therefore refinancing is their best option.
Take Cash Out
A cash out refinance is when the balance of the new loan exceeds the payoff of the existing loan and closing costs associated with the refinance. The amount leftover after the prior loan and closing fees have been paid is given to the borrower to use at their own discretion. Many borrowers use the money to do home renovations or pay for college education costs.
Many homeowners decide to refinance their home to consolidate consumer debt. If your home has a substantial amount of equity rolling all of your debts into your mortgage can yield a substantial amount of savings. Eliminating the consumers debts will lower the interest paid on the debt and can free up a large amount in monthly payments.
Buy an Investment Property
Many homeowners are deciding to refinance their homes in order to purchase an investment property or vacation home. They use the equity from their current home to purchase an additional property. Interest rates for refinancing a primary residence are typically much lower than the interest rates on investment properties or second homes. Buying an investment property is one of the reasons to refinance that makes this option very appealing to many.
Refinancing is a great option for homeowners who currently have more than one lien on their property. Homeowners with two mortgages usually have a higher interest rate on their second mortgage and are making two separate payments every month. By consolidating the two mortgages into one loan homeowners can save a lot in interest and free up cash each month.
Convert an Adjustable Rate Mortgage
Homeowners that are approaching an interest rate change on their adjustable rate mortgage may decide to refinance their loan to a low fixed monthly rate. It may be in their best interest to refinance it the fixed rates are low and take away the risk of their rate adjusting to a higher amount on their current loam.
Shorter Loan Term
When interest rates are low enough many homeowners can shorten the remaining term of their loan and still save money monthly. This translates to thousands of dollars in interest savings. Likewise, a homeowner may still be able to pay about the same amount each month on their mortgage and still reduce the loan term by 5-10 years.
If you have equity in your home and are looking for ways to best maximize it consider these reasons to refinance. Taking advantage of lower interest rates, decreasing your loan term and consolidating debts can drastically change your financial situation for the better.