Friday, May 15, 2015

Thinking of Refinancing? 4 Good Reasons to Follow Through


For the past couple of years, mortgage rates have been lower than they’ve been in decades. So if you’re thinking about refinancing your home loan, now’s as good a time as ever.

Refinancing involves getting a new home loan to replace an existing one. If you’re unfamiliar with refinancing or if you don’t understand the benefits, trading one mortgage for another might seem pointless. However, refinancing a mortgage loan is one of the most effective ways to modify your mortgage terms. Here’s a look at four things you can accomplish by refinancing your home.

1. Get a cheaper interest rate

Since mortgage rates can change from year-to-year, the rate you’re paying might be higher than current mortgage rates. You might also have a higher rate if you didn’t have the strongest credit score when originally applying for the loan. If your credit has improved since buying the home, this is your chance to get a cheaper rate. Unless you’re able to get a mortgage modification, refinancing is the only way to take advantage of lower mortgage rates, which can save thousands in interest over the life of your loan.

2. Get a lower mortgage payment

Not only can refinancing lower your mortgage rate, it can lower your mortgage payment. Your monthly payment is based on your loan amount and your interest rate. And if your monthly interest charges decrease due to a lower rate, so does your mortgage payment.

Depending on the difference between your old and new mortgage rate, refinancing can potentially reduce your mortgage payment by hundreds every month. This creates additional cashflow that can be used for other purposes, such as paying off credit cards, saving for retirement or building an emergency fund.

3. Get a fixed-rate mortgage

If you have an adjustable-rate mortgage, refinancing to a fixed-rate home loan is the only way to get a fixed, predictable mortgage payment. Adjustable-rate mortgages have a fixed-rate period, which is typically between three and five years. After this period, the interest rate resets every year, either increasing, decreasing or staying the same. Locking in a fixed-rate offers protection from rising interest rates.

4. Get cash from your equity

If you’re sitting on thousands of dollars of equity, you don’t have to sell your property to get this money. A cash-out refinance puts equity in the palm of your hands. You can use the money for debt consolidation, college expenses, a wedding, home improvements or start a business. You can borrow up to a percentage of your available equity, usually 80 percent. Just know that a cash-out refinance increases your mortgage balance, often resulting in higher monthly payments.

The Bottom Line?

There’s plenty to think about before refinancing your mortgage loan. It’s important to understand exactly why you’re refinancing, and you need to weigh the pros and cons. There’s no way to know for certain when rates will rise again. So take advantage of low mortgage rates and save money while you can.

source: totalmortgage.com