Many homeowners are excited when they first purchase a new home, but they may eventually consider refinancing the associated mortgage. When you refinance your mortgage, you pay off the existing balance and replace that loan with a new one.
There are multiple reasons why it can be advantageous to refinance your home mortgage. Here are a few of them.
Lower Interest Rates Are Available
Interest rates fluctuate over time. Several years after the onset of your original loan, the rates could drop substantially. As such, in order to realize significant savings, it is best to wait until the interest rate reduction can more than compensate for the fees associated with refinancing the loan. Like the original loan, the new loan will require a property appraisal, application fees, and a title review. Your creditworthiness will also be considered, so be sure that your credit score is high enough to qualify for the best rates.
If your credit rating has substantially improved since you first secured the loan for your home, you may be eligible for a lower interest rate even if standard rates have not dropped. The reduced interest rates can save you thousands of dollars over the course of your loan.
Shorten the Length of Your Mortgage
Reduced rates may even make it possible to shorten the length of your loan without raising your monthly mortgage payments. People with 30-year mortgages may be able to qualify for a 15-year term with a lower rate.
In addition, if your finances have improved since the start of your original mortgage, you may choose to refinance for a shorter term even if your monthly payments are higher. The total amount of interest that you pay for your loan will likely be quite a bit lower, and you can reduce your overall debt faster.
Convert to a Loan With a Fixed Rate
A homeowner may have an adjustable-rate mortgage originally. These loans usually have interest rates that start low and increase over time. As a result, the mortgage payments may eventually become uncomfortably high. The lower rates often remain in place for the first few years before increasing. By converting to a fixed-rate loan, homeowners can have a set mortgage payment.
Access Your Equity
As you reduce the loan principal, you may choose to refinance to access the equity in your home. People often find themselves in financial situations that require additional funding. The additional money from the refinancing can be used for multiple reasons, such as debt consolidation, educational expenses, or funding business ventures.
If you are interested in refinancing your home mortgage, schedule a consultation with a lender in your local area.