Have you ever wondered what the reasons are why so many people refinance their mortgage? Maybe you have heard friends and relatives discussing it and weren't sure? There are a few excellent reasons to get a new mortgage. Refinancing can reduce your monthly payments through lower interest rates or allow you to repay your mortgage loan more quickly.
Let's review the best reasons to refinance your mortgage and some of the issues you must consider.
The refinance mortgage option allows you to repay the old mortgage from your lender. When you initially got a mortgage, it was used to pay the seller of the home, but refinancing allows you to start again with a loan with better terms.
While you may have been stretched financially when you originally applied for the mortgage, this may not be true a few years later.
Maybe you could only come up with a smaller down payment which meant getting less attractive mortgage rates.
Saving for a down payment isn't always easy, but you could be in better financial shape with increased equity now.
This should mean that refinancing allows you to get a better deal as your financial situation improves.
Before you begin the process of refinancing, you need to understand your reasons for doing it. This will help show you the right direction to meet your goals and save money. The benefits of a refinance might be different for one person than for another.
One of the more common reasons people refinance is to get out of a variable-rate mortgage. If you started with an adjustable-rate mortgage, changing over to a fixed-rate allows you more stability in your outgoing funds. In many circumstances, an adjustable rate will offer a lower initial interest rate which could help you qualify for a mortgage.
The adjustable rate is sometimes chosen because a borrower knows they will be moving again relatively soon. If you can get a lower rate with an adjustable mortgage, there would be no need for a fixed rate. One's life can change quickly, and the need to get a fixed rate could become clear.
Another reason could be the adjustable rate increased over time, and a fixed interest rate could offer better value now.
A lower interest rate may now be available, reducing your monthly costs and the amount you need to spend over the rest of the mortgage term.
There is also the option to increase the length of the mortgage to reduce your monthly payments. This option will mean you pay more in interest since you will add years to the loan term.
Sometimes people do this if they have additional expenses added to their budget and need to make monthly costs more reasonable.
There is also the option of reducing the term of the loan. Changing from a 30-year mortgage to a 15 or 20-year term could mean a big saving in your interest payments. It will mean more to pay in the short term with higher monthly payments but less to pay overall. Many ask themselves, "should I pay off my mortgage early"? There are many pros and cons to think about in this scenario.
What could be the best financial move might not be the same for someone else. The article at Maximum Real Estate goes over all the considerations to consider when figuring out whether it's worth it.
If you want to release some of the money in your home, for whatever reason, you can refinance and borrow more than is still owed. The difference will be given to you by the lender to use as you wish. This is known as cash-out refinance and can offer you a lower interest rate simultaneously.
Maybe you would like to buy a boat or a new car? These are legitimate reasons why someone would refinance into another loan.
If you are paying private mortgage insurance, refinancing can remove it from your monthly mortgage costs. This is especially true when you have an FHA loan, which can't ordinarily be canceled, and only either selling or refinancing removes the insurance premiums. However, you will need to have enough equity in the property for this to be an option. You can see how to terminate private mortgage insurance here at Realty Biz News.
Did you purchase land with the intent to build your own home eventually? One of the ways people often buy land is by getting a land loan. When the time comes to construct their dream home, they will re-finance by getting a construction loan that will turn into a permanent home mortgage.
If your original mortgage was over 30 years, refinancing with a loan over another 30 years can seem attractive. This will lead to much-reduced payments, even if the interest rate isn't much lower than previously.
However, since you will likely have been paying your mortgage for at least a few years, you'll add to the time it takes to repay the loan and increase the interest paid.
Instead, you can ask the lender to give you a loan that matches the time remaining on the current mortgage. This will mean paying more per month than a new 30-year loan, but it should still be less than your previous mortgage arrangements.
So, for example, if you have paid four years of mortgage payments and want to refinance, you might ask the lender to amortize your new loan over twenty-six years instead of thirty.
Many lenders are more flexible today than they used to be. It is not uncommon for a lender to write a mortgage over an unusual period. Many mortgage myths are out there, so make sure you don't fall for one of them!
If you believe getting a new mortgage is right for you, check the numbers to ensure. Refinance calculators are available to help, though you must make some assumptions about interest rates, the loan amount, and the fees involved.
With this information, you should be able to work out how long it will take before refinancing starts to pay off. There will be fees required to set up a new mortgage, which will eat into the savings you make from the refinance mortgage.
Looking around for new mortgage deals will give you a better understanding of the time it will take to break even on the new loan.
When looking to refinance your mortgage, you should check with many different lenders to find out what they will offer. Then you can compare the options to find which lender will give you the deal which matches your requirements.