The main advantages of refinancing your home
A lot of people are hearing about refinancing their home loan these days. Whether it’s at your bank, in a TV commercial, or maybe you’ve heard others talk about it. Either way, refinancing a home mortgage is now a very popular option for many homeowners due to favorable interest rates and a recovering housing market. However, many homeowners do not understand mortgage refinancing or the benefits it can provide. These are some of the most popular reasons to refinance.
Reduce Monthly Loan Payment
Many homeowners have loans with higher interest rates than what is available now. Some homeowners, especially those who bought during the housing boom, took out an ARM (adjustable-rate mortgage) loan and have seen low introductory interest rates rise. Refinancing to lower the amount of your monthly mortgage payment is by far the most popular reason homeowners take action. While closing costs and fees can add up, getting a lower interest rate will generally offset these costs. If a homeowner can lower their interest rates by even 1%, a mortgage refinance can benefit them and dramatically lower their mortgage loan payments.
Get a different type of loan
Many homeowners find themselves in a situation where changing the type of loan they have can save them money. Homeowners typically want to get out of an ARM and opt for a more stable fixed-rate mortgage. Many ARM loans had low interest rates at first, but have increased over time, which is the nature of the loan type. Most of them now carry higher interest rates than are available on a standard-rate fixed-rate mortgage. Homeowners who plan to stay in their home for a while will generally benefit from getting out of an ARM and taking out a more traditional fixed loan. However, homeowners planning to move or sell their home in the next few years may benefit from doing the opposite and participating in an ARM. Many ARM loans offer lower closing costs and low initial interest rates. Many times, these rates don’t change for the first few years, then they begin to adjust. If a homeowner can get out of their home before interest rates rise, they can save a lot of money.
Earn home equity cash rebates
There are some homeowners who, over the years, have built up equity in their home and want to use it to their advantage. This is where refinancing a cash-back mortgage comes into play. Using this method, homeowners can, for example, refinance a $50,000 loan, where they owe $20,000 and pocket the $30,000 difference. These loans are generally cheaper than bank loans and personal loans. Some homeowners use this money for a remodel that further increases the value of their homes, while others use it to make large purchases or pay other bills. However, be careful. This type of loan can easily cause long-term financial problems if not thought through.
Pay off the loan faster
Some homeowners are fortunate enough to have achieved a better financial position since purchasing their home. Whether it’s through a windfall, more disposable income, or a higher salary, some homeowners may want to pay off their biggest debt as soon as possible. Typically, a homeowner will refinance a mortgage that allows them to pay off their mortgage sooner, sometimes reducing the loan repayment duration by 10 or 15 years. Monthly payments are typically higher, but the overall savings are huge. This method also allows the homeowner to build equity in his home earlier in case he needs it in the future.
Mortgage refinancing is not going to be a solution for everyone, but for many people it will provide many advantages to their current loan and save them money. Each person has a unique set of goals and financial situation that will make certain home loan refinancing options more beneficial than others.
