What are some of the reasons that people choose to refinance their mortgage?
Refinancing could save tens of thousands of dollars in interest and years of mortgage debt repayment. However, it takes a lot of work to do it. Here are some reasons that you may want want to consider it.
To shorten your loan term. If you have a 30-year mortgage, now may be a great time to consider refinancing. With record low interest rates, you may find that a 15-year mortgage is not much more expensive than the 30-year loan payment you have been paying. Start by calculating your mortgage to get an idea of what your new payment might be. If your new estimated payment is feasible, consider contacting a mortgage professional.
Refinance to lower your interest rate. As I mentioned before, interest rates are near a record low. And as I write this, 30-year mortgage rates are hovering above 3 percent and 15-year loans can be secured for an even lower rate. If your home is now financed at a higher interest rate, it may be a great time for you to consider refinancing. You could literally save tens of thousands of dollars just by taking the time to fill out the necessary paperwork and gather the needed documents.
Refinance to lower your payment. Refinancing your mortgage at a lower interest rate could mean drastically reducing your payment and saving tens of thousands of dollars in interest. Lowering your mortgage payment could also free up hundreds of dollars per month that could be saved or invested. Although refinancing to lower your payment could increase the term of your loan, it could make sense in your particular situation.
Refinance from an adjustable-rate mortgage to a fixed-rate loan. If you currently have an adjustable-rate mortgage, now may be the perfect time to refinance into a fixed-rate loan. Interest rates are low now, but they may not stay this low forever. Locking into a low, fixed rate can protect you from rising interest rates in coming years. Additionally, a fixed payment is easier to plan for and budget.
Refinance to cash out home equity. It’s a tempting proposition to cash out your home equity by refinancing your home. It could even be a great financial move in some circumstances. For instance, it may make sense to cash out some of your home equity in order to buy an investment property or start a business. It mostly depends on what you are trying to achieve and if you are someone who can manage your debts responsibly.
You might not even qualify. Your loan must meet several requirements in order to qualify:
- The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.
- The mortgage must have been sold to Fannie Mae or Freddie Mac on or before 2009.
- The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP before 2009.
- The current loan-to-value (LTV) ratio must be greater than 80%.
- The borrower must be current on the mortgage at the time of the refinance, with a good payment history in the past 12 months.
There are many things to consider before refinancing your mortgage. Most importantly, you should weigh the pros and cons of your particular situation and act according to your own best interest.