When you commit to buying a home with a mortgage, it’s usually with the plan of paying it off with monthly payments over 15 or 30 years.
During this long timeframe, your life circumstances could change, or the economy could change. When either of these occur, you might want to consider refinancing your mortgage.
Here are five reasons to refinance your mortgage:
To reduce your loan’s term
Want to pay off your home loan quicker? If the answer is yes, you can refinance your mortgage into a shorter term, such as refinancing your 30-year fixed rate mortgage into a 15-year fixed rate mortgage. This can lower the total interest amount you pay over the life of your loan, and save you potentially thousands of dollars. However, it can also raise your monthly mortgage payment.
To obtain a lower interest rate
Reducing your interest rate saves you money while increasing the rate you build equity. Many financial experts recommend considering refinancing if you can lower your interest rate by 1%.
To tap into your home equity
Want to make home improvements or cover an emergency expense? Consider a Home Equity Line of Credit (HELOC). This gives you a line of credit related to your home equity that you can use to make purchases when needed. Because home equity takes years to build, HELOCs should be used wisely and strategically, and not as an excuse to live outside your means.
To eliminate mortgage insurance
If you have a mortgage that requires you to pay mortgage insurance for the life of the loan, you could consider refinancing with a conventional loan. This frees you from monthly mortgage insurance payments after you accumulate 20% home equity.
Refinancing can provide powerful benefits, but comes with tradeoffs
Mortgage refinancing is something you should consider carefully, as it can provide you with major benefits but also has tradeoffs. Take time to research refinancing options and your financial situation before making any decisions.
To learn more about mortgage refinancing, contact one of Open Mortgage’s friendly loan originators.
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