The Advantages of Refinancing your Mortgage
If you have a home and a mortgage, you are probably already familiar with the idea of refinancing your mortgage. If not, basically refinance is simply the process of obtaining a new mortgage to replace your old mortgage.
When you apply for a new mortgage you are often eligible to obtain some additional cash or possibly lower your monthly payments. In some instances you may also be able to reduce the terms of your loan. The additional cash can be used for education purchases, home renovations or any other major purchases you might like to make. The extent of financial advantages available through a refinance will typically depend on your particular financial circumstances. Generally; however, a refinance will provide the following benefits:
- Low Interest Rates
This is usually one of the most obvious advantages provided through a home mortgage refinance. When market conditions are good it is sometimes possible to reduce your interest rate by a significant amount. Of course, as you are probably aware, the more you are able to lower your interest rate, the more you are able to save on your monthly payment. A lower interest rate also makes it possible to pay off your home sooner as well as save money on the overall interest you pay over the life of your home loan.
- Low Monthly Payments
As just mentioned, a lower interest rate will help you to obtain a lower monthly payment. As a result, you can benefit from additional savings per month that can be used for paying off other bills or even set aside for a rainy day. The more you are able to save on your interest rate, the more you will be able to save on your monthly payments.
- Ability to Change Loan Terms
Refinancing also provides you with a tremendous amount of flexibility regarding changing the terms of your loan. Rather than lowering your monthly payment, you might choose to instead continue paying the same amount per month and benefit from a shortened loan term.
- Better Mortgage Service
If you were unhappy with your first mortgage service provider, refinancing can allow you to obtain a new provider that may provide better service. You can benefit from the ability of either remaining with the same lender or going a completely different route and choosing another lender. At the same time you can also select the specific types of terms and service that best match your personal financial goals.
- Consolidate Bills and Debts
Refinancing your mortgage is also a great way to consolidate your debts and other bills. If you have a lot of bills refinancing can allow you to roll all of those debts into a single bill. As a result, you can pay a single bill each month instead of worrying about keeping up with multiple payments. At the same time, you may be able to actually save money because it is likely you will be able to benefit from a lower interest rate on the new loan than you are currently paying on all of your separate debts. Consolidation can allow you to take advantage not only of convenience but also the ability to save money as well.
- Shorter Closing Time
You probably well remember how long it took to apply for and be approved for your first home mortgage. The good news with a refinance is that it is typically must faster and easier to apply for and be approved for a refinance. In the end, it usually depends on your qualifications and current financial situation, but most owners find that they can refinance their homes in a week or less. The process can be sped along by ensuring that you have all of your financial documentation ready to provide to the lender when you apply for the loan.
In determining whether a refinance is the best option for you, keep in mind that there are usually fees associated with a refinance. Therefore, you need to determine how long it will take for you to break even and recoup those fees based on the amount you save per month with the new mortgage. As a general rule of thumb, if you are going to remain in your home for three years or longer past the refinance, it is a good financial decision. If you think you might sell your home in less than three years, you should carefully consider whether you will be able to recoup the cost of the refinance from the savings during that duration to make it worthwhile.