They say that the only thing certain in life is change. When your life circumstances change, here are five reasons you may want to consider refinancing your mortgage:
To obtain a lower interest rate
One of the most common reasons to refinance your mortgage is to secure a lower interest rate. Reducing your interest rate helps you save money and increases the rate you build equity (wealth) in your home.
Traditionally, it has been recommended to refinance if you could lower your interest rate by 2%, but many experts now recommend considering refinancing if you can lower your interest rate by 1%.
To reduce your loan’s term
If you want to pay off your loan faster, you can refinance your mortgage into one with a shorter term. Reducing your loan’s term can significantly lower the amount of interest you pay while causing only a slight change in your monthly mortgage payment.
To convert between fixed-rate and adjustable-rate mortgages
If interest rates are rising, you may want to switch your adjustable-rate mortgage into a fixed-rate mortgage to lock down your monthly payment amount. When you obtain a fixed-rate mortgage, you don’t have to worry about interest rates rising in the future.
On the other hand, if interest rates are falling, converting to an adjustable-rate mortgage can bring you additional payment relief.
To eliminate mortgage insurance
If you currently have a mortgage that requires you to pay mortgage insurance for the life of the loan, you may want to consider refinancing with a conventional loan. This can free you from monthly mortgage insurance payments once you’ve accumulated 20% equity in your home.
To tap into your home equity
If you want to make home improvements or cover a large expense, a cash-out refinance allows you to tap into the equity of your home. Doing this will cause your new mortgage to consist of your original balance (prior to refinancing) plus the desired cash-out amount, making it important to think carefully about whether this type of refinance is ideal for your financial situation.
Refinancing can offer mortgage relief, or cost you money
Mortgage refinancing is something homeowners should consider carefully, as it comes with tradeoffs. It’s important to take time to research refinancing options and analyze your unique financial situation before making any decisions.
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