Refinancing your mortgage is something most homeowners consider at least once throughout the lifespan of their home loan. It allows you to pay off your previous loan by applying for a new one that has better financial advantages. While there are many good reasons to refinance, here are five common ones.
Lower Interest Rates
The number one reason homeowners decide to refinance is to secure a lower interest rate on their mortgage. Not only does this save you money in the long run, it also can decrease your monthly payment. Plus having that lower interest rate means you can start building true equity in your home sooner.
Improved Credit Score
Even if interest rates haven’t dropped enough to make refinancing seem worth it, a higher credit score might. If you’ve greatly improved your credit score from the time you purchased your home, you may be able to reduce your mortgage rate.
Shortening the Term
If interest rates are decreasing, there is a chance you may be able to get a shorter loan term with little to no change in your monthly payment. Decreasing the term of your loan allows you to pay off your loan sooner.
Switching Rate Types
If you chose an adjustable-rate mortgage when purchasing your home, the rate may have increased slightly over the years. By switching to a fixed-rate mortgage, while interest rates are low, can protect yourself from future increases.
Cashing Out
If you didn’t already know, owning a home opens up a lending option to you for big purchases. You can use the equity you’ve built in your home to obtain a HELOC or Home Equity Line of Credit. You can use this money to consolidate consumer debt, pay for a wedding, buy a car, education expenses, and more. Lower interest rates mean you can obtain these loans at a lower cost.
TIP: Current interest rates should be at least one percent lower than your current rate before you decide to refinance.
IN THE END – A loan officer or mortgage broker can help run multiple scenarios to show you the cost and potential savings of refinancing. However, it’s important to remember that refinancing costs money upfront. With most companies you will have to pay origination fees and an appraisal cost. If you are interested in refinancing, get in touch with us. Data Driven Real Estate partners with Keller Mortgage who has several cost-savings in place for refinancing!
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