Refinancing a loan is a major move that can result in significant savings. Many Home Owners refinance their home loan to minimise their repayments, to access equity they’ve built up in another property or to benefit from more suitable features or better customer service provided by a new lender. While all homeowners have their individual reasons for refinancing, the ultimate goal is to keep money in your pocket. So, whether you’re ready now or choosing to wait, here are the five key reasons to refinance your mortgage.
1. Lower Your Mortgage Rate
A common reason for homeowners to refinance is simply to lower their mortgage rate. If your current rate is higher than what’s being offered today, you should consider refinancing. You’ll lower your monthly mortgage payment, free up cash for other uses, or just make daily living a bit more comfortable.
2. Switch to a Shorten Loan Term
Have you ever concerned about the number of years on your current mortgage? If so, then refinancing to a shorter-term may be the answer. In some cases, if your current rate is high, the monthly payment on a shortened term may be the same, yet the years of payments will decrease. So while you may not see a payment reduction every month, the overall amount of interest paid will be reduced.
3. Debt detox
Short term debt, such as credit cards, have higher interest rates than mortgages. If you have this type of debt, it may be time to turn to a debt consolidation refinance. As long as there’s sufficient home equity available, this type of refinance is possible. Consolidating your debts relieves you of multiple monthly payments and may provide significant monthly interest savings.
4. Cash Out
If you find yourself in need of money, consider a cash-out refinance. Taking equity as cash to use for other needs may be a cost-effective way to accomplish your goals, since mortgage rates are generally lower than personal loan rates. You’ll only need to make one payment each month instead of having multiple debt obligations.
5. Refinance from an ARM to a Fixed Rate
Adjustable rate mortgages offer a lower rate at the start, but then will readjust at a specific time. Many new homeowners choose an ARM because the monthly costs are cheaper. If you have an ARM, then you know your monthly payment might change and that it’s time to consider a fixed rate refinance. With the security of a low fixed rate mortgage, the monthly payment for principal and interest remains the same for the entire term.
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