Seven Great Reasons to Refinance

Seven Great Reasons to Refinance

There are many great reasons to refinance. With new, lower cost and no-cost mortgage refinance options, traditional rules like refinancing only when rates drop at least two percentage points lower than your current mortgage, no longer apply. Today, even reducing your mortgage interest rate a little can save you big over the life of your home loan. This is especially true should you decide to consolidate your other debts. Take a look at these Seven great reasons to refinance:

  1. Lower your paymentIf you plan to live in your home for a few years, it may make sense to pay a point or two to decrease your interest rate and overall payment. Over the long run, you will have paid for the cost of the mortgage refinance with the monthly savings. On the other hand, if you plan on moving in the near future, you may not be in your home long enough to recover the refinancing costs. Calculating the break-even point before you decide to refinance can help determine whether it makes sense.
  2. Cash out on your home equityYour home is a great resource for extra cash if you have equity. You can use the cash to finance your child’s education, pay for home improvements, consolidate high interest debt, or take a vacation. With a cash-out mortgage refinance transaction, it’s easy. And it’s even tax deductible.
  3. Convert from an adjustable rate mortgage to a fixed rateAdjustable rate mortgages are great if you want lower initial monthly payments and are willing to risk upward market adjustments. They’re especially ideal for homeowners who don’t plan to own a particular property for an extended period of time. However, if you are looking for more stability, you may wish to convert your adjustable rate mortgage to a 15-, 20-, or 30-year fixed rate home loan. Though the interest rate may be higher, you have the confidence of knowing exactly what your mortgage payment will be each month. Adjustable rate mortgages, on the other hand, can increase monthly payments to a level you no longer can afford.
  4. Shorten the term of your mortgageShortening the term of your current mortgage can save you ten’s of thousands of dollars in interest. With today’s low rates, it is possible to shorten your term, say from a thirty-year to a twenty-year, and have minimal impact on your monthly payment.
  5. Combine first and second mortgagesSecond mortgages usually have significantly higher rates than first mortgages. In today’s low interest rate environment, it may make sense to combine the first and second mortgages into one low rate first mortgage.
  6. Remove private mortgage insurance (pmi)Low down payment home purchase options allow homeowners to purchase homes with less than 20% down. However, they also usually require private mortgage insurance, which is designed to protect the lender from default. As the value of your home increases and the balance of your home loan decreases as you make your monthly mortgage payments, you may be eligible to remove your pmi the next time you refinance your home.
  7. Balloon payment is due

    Like adjustable rate mortgage programs, balloon programs are great when you want lower rates and lower initial monthly payments. However, if you still own the property at the end of the fixed rate term (usually 5 or 7 years), the entire balance of your mortgage is due the lender. In this situation, a mortgage refinance into a new adjustable rate mortgage home loan or fixed rate makes sense.

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