A mortgage refinance can pay off in many ways, and can achieve many different goals. You can make your monthly mortgage payments more affordable by taking advantage of lower interest rates.
There are four main reasons why you might want to refinance:
- Lower your interest rate or term/amortization
- Consolidate debt
- Change your mortgage length
- Get cash out of your home
Whether you need help determining if refinancing is the best option for you or need assistance implementing your goals, our team is here to help.
A Note on Interest Rates
The interest rate on your home loan is the proportion of the loan that is charged to you as interest, usually expressed as an annual percentage. You can think of interest as the price of money, or the price of borrowing. Lenders charge borrowers interest in exchange for letting them borrow. The rate that these lenders charge to borrow money changes based on a variety factors, but the simple way to think about it is in terms of supply and demand:
- If there is a lot of demand for the lender’s’ money, i.e. there are a lot of people looking for a home loan, the interest rate that the lenders can charge is higher.
- If the demand is low, then lenders have a larger supply of funds. Because there are fewer borrowers, the lenders charge a lower rate (some interest coming in is better than none).
If you took out a home loan at a period of high competition you are probably paying a higher interest rate, meaning that your mortgage payments are more expensive. Likewise, if you received a mortgage in a period of low competition, you may not be paying as much in interest and your mortgage payment is most likely lower.
Home shoppers are often confused about the difference between APR (Annual Percentage Rate) and interest rates. When evaluating a mortgage loan, interest rates can tell a different story than APR.
4 Reasons to Refinance Your Home
Refinancing at the right time can reduce your monthly payment, change your mortgage from an adjustable rate into a fixed-rate loan, take cash out for a project, or pay off the loan early.
Lower Your Interest Rate or Term/Amortization
If interest rates are currently lower than the rate you received when you received your mortgage, it might be time to consider refinancing. Refinancing your home loan to can help you take advantage of lower interest rates, which will lower your monthly payments.
When you refinance you might decide to take some of the money you save on monthly payments and reduce the terms of your loan, or the length of time you take to pay off your house entirely. Make sure you talk to a mortgage expert and consider all your options before refinancing your home.
The interest rate on a home loan is typically much lower than that of other types of debt. It is generally thought that home loans are less risky, and so lenders don’t charge borrowers as much to take out a mortgage.
By refinancing your home, you can take the equity you’ve paid into your home out, and pay down your higher-interest bills. This will consolidate your debt and help you get better control of your budget. Instead of paying down debt on multiple fronts, you will have one monthly payment, your new mortgage, and you won’t be paying as much interest because of the lower interest rate.
Utilizing this strategy may also have tax benefits. Ask us how a home refinance can help you better manage your debt.
Change Mortgage Length
Refinancing may allow you to adjust the length of your mortgage to cut back on interest payments. If interest rates are lower than when you initially purchased your home, consider refinancing and taking the money you save on monthly mortgage payments to shorten the the length of your mortgage.
By refinancing your home, you might be able to own your house outright much faster. Talk to a mortgage specialist to see if current rates make now the right time to act.
Get Cash Out of Your Home
Refinancing is a great way to get cash out of your home. Life is full of unforeseen events, whether you need cash for an emergency or are looking to reinvest in your home through home improvements, refinancing may be a way to generate funds.
Your home is a source of equity, and refinancing allows you to remove the cash you’ve put into your home and use it for whatever need may arise. Talk to your financial advisor and mortgage expert before refinancing your home, make sure it’s the solution for your needs.
Is Refinancing Right for You?
The decision to refinance a home is specific to each homeowner’s situation. Some factors that contribute to making this decision include the current value of your home, the terms of your original loan, your personal financial goals, your credit score, your credit history, and your current income. The information in the above areas will help a loan specialist at Chris Doering Mortgage best determine if refinancing is a beneficial option for you.
It’s important to keep in mind the additional costs associated with refinancing, including various closing costs. Give us a call or contact us online to discuss how refinancing costs, in conjunction with your goals and potential savings, may provide a financial opportunity for you.