The upfront cost of refinancing is a little off-putting, about 3 to 6 percent of the cost of your home. Homeowners don’t like this large cost, but the savings they can get can be very helpful. Here are just some of the benefits of refinancing and how they can help you.
Get a Lower Interest Rate
One of the biggest reasons people explore the idea of refinancing a home is to reduce their interest rate. Smaller rates can reduce your monthly payment or put more money towards the principle of the mortgage, which allows you to build more equity. The upfront fees are usually a small price to pay, especially if you can refinance for two percentage points or more than your current rate.
Shorter Loan Terms
Refinancing can also help homeowners reduce the number of years that they need to pay on their loan. In order to do this, the existing home loan is converted into a new loan with a lower rate. Your bill may stay the same, but you can pay off the loan in less time, such as 15 years instead of the standard 30.
Change the Loan Type
Some homeowners may have a loan type that isn’t very desirable. Before the housing collapse, interest-only and adjustable-rate loans were common. If your rates are rising or you are not paying anything towards your principle, you may consider refinancing to obtain a fixed rate loan.
Use Equity and Consolidate Debt
Refinancing can help you consolidate your current debts. This is usually done in cases where the homeowner has a first and second mortgage. Homeowners may also have a home equity line of credit that they want to include in the consolidation process. This can help them get a lower interest rate loan or do a cash-out refinancing, allowing them to pay off any debts that they may have.
When you refinance a home, you may be able to get some steep savings. To decide if refinancing is a good option for you, consider how long you are planning on staying in the home. It can take two to five years to recover from making the large initial investment of refinancing. Homeowners that plan on moving during that time may not get the big benefits that a person staying would.
When you decide that refinancing your mortgage loan is the best choice for you, contact a local mortgage broker.
By Andrew Watson