Are you thinking about refinancing your mortgage? Even if your current loan payments are affordable or you’ve only been in your home for a few years, you may benefit from refinancing. Here are ten reasons why many homeowners choose to refinance:
- Save on interest payments
People typically refinance when interest rates decrease. Whatever the reason, if you qualify for a lower interest rate than your current mortgage rate, you can potentially save thousands of dollars over the full term of your loan.
- Take advantage of better credit
Has your credit score improved recently because you’ve been making your mortgage payments on time, every time? If you’re now eligible for a more favorable interest rate, it may be a good idea to take advantage of better credit by refinancing.
- Lower your payments
If you’re looking to ease your monthly payments, refinancing to a lower interest rate or extending the term of your loan are two ways to do this.
- Provide spare cash
Whether paying for retirement, college tuition or medical expenses, a cash-out refinance may provide the additional money you need. A cash-out refinance taps into your equity by refinancing into a larger loan amount than you currently owe. Keep in mind that you are reducing the equity in your home when you take out some of the value in cash. The best expenditures are urgent needs rather than frivolous purchases.
- Consolidate your debts
Are you overloaded by high-interest debt on your credit cards or car loan? Mortgage loans typically carry a significantly lower interest rate than consumer debt. Refinancing and consolidating all your debt into your mortgage payment can help in decreasing the money you owe more quickly, and potentially boost your credit score. Best of all, mortgage interest, unlike credit card interest, is usually tax-deductible.*
- Make home improvements
One popular reason to refinance is to make home improvements or repairs. Renovations may add to the value of your home, and you can wrap the costs into your monthly mortgage payments with a renovation loan.
- Change the loan type
If you have an adjustable-rate loan that is higher than available rates, consider refinancing and changing your loan type. Consider switching from adjustable-rate mortgages (ARMs) to a fixed-rate mortgage to lock in a lower rate for the remaining life of your loan.
- Decrease the loan term
Would you like to own your home free and clear as soon as possible? To pay off your loan in full faster you can reduce your loan term to a shorter term. While 15- and 30-year home loans are standard, mortgage lenders are also willing to consider home loans on your terms.
- Increase financial security
If you have an ARM, you might want to refinance to a fixed-rate loan so that you have predictability in your budget—your mortgage payments will stay the same for the entire loan period. This is especially helpful in times of economic uncertainty or if you expect interest rates to rise.
- Stop paying private mortgage insurance
If you buy a house with less than 20% down payment or equity, some lenders will require private mortgage insurance (PMI). Certain lenders also require it with conventional loans if the government does not back them. According to realtor.com, “Refinancing to a loan without mortgage insurance can save you hundreds of dollars each month, but you’ll need to have at least 20% equity in your home to qualify.” 1
While there are many great reasons to refinance, now may not be the ideal time for your situation. It’s a good idea first to calculate closing costs and fees as well as how much it can change your payment. Most importantly, figure out how long it will take for you to break-even. Once you’ve decided if refinancing is right for you, learn how to refinance your mortgage in seven steps.
*Please consult a tax advisor for more information. The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply.