One of the reasons to refinance your mortgage is to save money. Whether for the long or short term, a refinance at a lower interest rate and lower monthly payments at a 30 year term can mean big monthly savings for you now, or refinancing to a shorter term and lower interest rate with payments that are about the same as you currently pay can mean huge interest savings and a quicker payoff and that means more savings for you down the road.
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However you look at this reason for refinancing, saving money is a major draw that can really pay off for you.
Adjustable Rates and Fixed Rate Mortgages
Another reason to refinance your mortgage is to be able to switch from an adjustable rate mortgage to a fixed rate mortgage. Many people entered into their current home mortgages with an adjustable rate mortgage, where they would most likely have a low fixed rate for the first few years of the loan and now their interest rates are adjusting and the payments are killing them because of the fluctuating interest rates. If you have an adjustable rate mortgage and are struggling to keep up with the monthly payments, then you may want to consider refinancing your loan and get a solid payment that you can afford each month.
You may be in a bind and need some cash flow that the equity in your home has to offer. This is another reason that many people choose to refinance their mortgage. Since you will have the money you need, this might sound like a good idea, but when you do this, you no longer have your equity as your resource, since you have borrowed against it.
In the past, when home values kept rising, this was a frequent reason for refinancing and it worked out, but now, with dropping home prices around the country, this might not be such a good option for you to consider.
Lower Interest Rates
One of the most common reasons to refinance your house is to get a lower interest rate on your mortgage. While your credit score has a lot to do with the rate you pay, you will still find that when interest rates drop overall, so too, do the rates that you will get regardless of your credit score, so if you have good credit and are interested in lowering your interest rate, then this is a good reason to refinance your mortgage. Remember that a lower interest rate will always add up to big savings over time and that will ultimately affect how much you pay in total for your home. Often, lower rates mean lower monthly payments, or if you choose to shorten the term of your loan, it will mean a quicker pay off and doesn’t the thought of having no mortgage payment at all appeal to you?
This brings us to another reason to refinance your mortgage that seems repetitive, but it cannot be stated enough: lower monthly payments mean more money for you to make ends meet, pay off debts and begin saving for the future. While it may take you some time to realize your savings, you might find that the two years it takes to make up for the money you spent to refinance is a short enough time to make you want to consider this option and it could be worth it in the long run. If you’re planning to move soon, don’t waste your time or money refinancing right now. You’ll never make back the money you spend for this endeavor, so it’s not a very wise choice for you, but if you are thinking that you will be in your home for a long time, then you might enjoy the security of knowing that you have a nice low monthly payment on your house.
When you’re looking for reasons to refinance your mortgage, you may need to look beyond the obvious to know if you will be making the right decision. It can be challenging to know if you’re making a strong financial decision, but in the end, taking the time you need to consider the reasons to refinance your mortgage may help you to see the bigger overall picture.