Refinancing a home mortgage can often prove challenging. Many people try to avoid the process, even when there are a lot of benefits for those that make the effort. The cost of refinancing a home is usually about 3 to 6 percent of the amount, which can require a large payment depending on the cost of your home. The truth is that once homeowners understand the costs and how much they will save, they realize that refinancing can be a very smart move. Here are the top benefits of refinancing and the information you need to make an informed decision.
Lower Your Interest Rate
The primary reason to refinance a home loan is to reduce your interest rate. This smaller interest rate helps you reduce your monthly payment and puts more money towards the principal of your loan, which in turn lets you build equity. After your upfront fees are considered, it usually makes sense to refinance, especially if it two percentage points or more lower than your current rate.
Shortened Loan Terms
Homeowners may also reduce the number of years that they have to continue paying their loan. This happens when an existing loan is converted into a different loan with a lower interest rate. With this benefit, your bill will stay the same each month or increase slightly, but you will shorten the life of your loan by as many as 15 years.
Change Your Loan Type
In some cases, homeowners may have loans that are interest-only or have an adjustable-rate. These were mostly issued before the housing collapse and aren’t very desirable. If you haven’t been paying your principle or your rates have been rising, you may want to refinance to get a fixed rate.
Consolidate Debt or Take Advantage of Equity
Refinancing may make sense if you want to consolidate debt, such as a first and second mortgage. They may also need a home equity line of credit, which can also be consolidated later on into a low-interest loan. Homeowners may also do a cash-out refinance in order to receive a check for their current equity and use it to pay off debts.
Refinancing benefits may also allow you to get some additional savings, but you should also consider how much longer you will be staying in your home. It may take two to five years to financially recoup from the initial investment of refinancing. Homeowners who don’t plan on leaving for a while can really benefit from the commitment.
If you are interested in refinancing your home loan, please contact a local mortgage broker today. They will be happy to discuss the options you have available.
