Why Should I Refinance My Mortgage?
If you already have a mortgage, you have the option of refinancing it. You do this by getting a new home loan to pay off your original mortgage. But you might be wondering why refinance if you already have a home loan? There are a few main reasons why this may make sense.
Why is it a good idea to refinance my mortgage?
It’s a good idea to refinance your mortgage if it can help improve your finances. Refinancing could lower your interest rate. This can reduce the cost of borrowing. This could allow you to reduce your monthly payment and thus offer more flexibility. It could also help leverage home equity – you might want to withdraw money to finance home improvements, for example. Or it could help you change the terms of your current loan for a better match.
4 reasons to refinance your mortgage
Here are four of the best reasons to refinance your home loan.
1. Lower your interest rate
A lower interest rate means more of your monthly payment goes to pay off what you owe. Depending on the decisions you make about your repayment schedule, a lower rate can also lower your total interest charges, get you a lower monthly payment, or do both.
Refinance rates are low right now, so it is possible to qualify for a new mortgage at a lower interest rate than what you are currently paying. You might also be able to get a better mortgage rate if your credit has improved since you originally borrowed. It is a good idea to shop around with refinance lenders to get the best rates.
2. Change your payment schedule
You can change your repayment schedule by refinancing.
If you have 20 years left on your mortgage, you could refinance a 15-year loan. A shorter repayment period could increase your monthly payment – sometimes even if you lower your rate. But it could drastically reduce the total payment costs.
You can also refinance a loan with a longer repayment period. With this strategy, you could save money on your monthly payments, even if you don’t lower your rate much. But it could increase the total cost of the loan, even if your rate is lower, because you would be paying interest for longer.
A mortgage calculator can help you understand how the repayment schedule and interest rate affect monthly costs and total costs over time.
3. Change your loan type
If you have an adjustable rate mortgage, you may decide to refinance a fixed rate loan. That way, you won’t have to worry about rising rates and payments in the future. Or if you have an FHA loan and are paying for mortgage insurance, you can refinance a conventional loan to eliminate mortgage insurance fees.
4. Leverage the equity in your home
If you have a lot of equity (property) in your home, you may want to use some of that money for other things. A cash-out refinance loan is one way to do this.
Here’s how a refinance with withdrawal works: let’s say you have a mortgage of $ 100,000. You could refinance a new mortgage for $ 150,000. Then the lender will give you the additional $ 50,000 in cash. You can use it for home improvement projects, to pay off credit card debt, or anything else you want.
This is an alternative to a home equity loan or home equity line of credit (HELOC). Refi cash-out loans may have lower fixed interest rates than home equity loans, while HELOCs often have variable rates. And while home equity loans are only tax deductible if you use the money to buy, build, or improve your home, your refinance loan is deductible if you itemize it.