There are many reasons why you should refinance your mortgage. In the current economy you may find yourself struggling to pay for your mortgage. This could be because of a high interest rate or just an unstable economy. If you find yourself in this situation you should consider refinancing your mortgage. Most people look into refinancing when they have equity on their home, which is the difference between the amount owed to the mortgage company and the worth of the home. Here are five reasons why you should consider refinancing your home.
Refinance for Lower Interest Rates
The main reason people look into refinancing is because they want a lower interest rate. If rates have dropped since your original mortgage then you can obtain lower interest rates if you refinance. This will lower your monthly payments – potentially saving you hundreds of dollars a year.
Pay off your loan faster
If you can afford a higher monthly payment due to an increase in income – you can refinance into a shorter loan. This allows you to pay off your mortgage faster. Say you refinance from a 30 year fixed loan to a 15 year fixed loan – this saves you 15 years of interest rates. That can potentially save you thousands of dollars.
Cash Out Refinance
It is also possible to do a cash-out refinance. This allows you to use the equity you have built in your home to borrow money. This is useful if you have to pay off debts or want to add onto your home to build to the value of your home. Lenders tend to view cash out refinances to be riskier. That being said, you can still get a better interest rate than your current financing even when taking cash out if rates have dropped or your credit score has improved significantly.
Your credit score has improved
If your credit score has significantly improved since you initially took out your loan, you may be able to refinance and get a better rate. A better credit score can potentially save you thousands of dollars throughout the lifespan of your loan.
Refinance to Switch to a fixed rate
If your original loan is an Adjustable Rate Mortgage (ARM) and your fixed term is about to end, you should look into refinancing into a fixed rate. While your new fixed rate will likely be higher than your original adjustable rate, you’ll be protected from future rate increases. Dropping to a fixed-rate loan can be cheaper if you plan to stay in your home for a while.
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