Refinancing your mortgage means that you can get a new mortgage to finance an existing mortgage. The new mortgage comes with a completely different term from the previous, which is usually a better deal for the homeowner.
There are several good reasons to refinance a mortgage. If you run out of cash and desperately needs to pay the monthly dues to avoid foreclosure, refinancing can save you. Or since refinancing a mortgage comes with better deals, it is a good way to fully pay your old mortgage and just start with a completely new one.
First step is to be informed. Glad you made it to this website! We also highly suggest you continue your research and read about the latest political updates regarding loans and economics in the United States.
Benefits of Refinancing Your Mortgage
1) Take advantage of lower interest rate. You next mortgage usually comes with a lower interest rate thus it is easier to pay. You can also use the loan here to pay for your existing mortgage loan- thus saving you from worries when you are really cash-strapped and possible foreclosure.
Lower interest can save you from paying more every month. For example, the monthly difference on a $300,000 loan compared with 6% interest rate and 4% interest rate is $600. A $600 stash on monthly payment is always welcome for anyone with financial woes.
2) Change Adjustable Rate Mortgage (ARM) to a fixed rate. ARM usually comes with lower rates for the fixed period of one to ten years. After that, the interest rate will fluctuate depending on several indicators like LIBOR. This can cause interest rate hike and higher mortgage payment. Should you decide to refinance your mortgage, choose fixed rate instead. This makes it is easier to allocate a budget for a predictable loan.
Consider this before refinancing your mortgage loan:
1) Watch out for refinancing costs. If paying for closing costs and other fees will eat-up any savings you will gain from refinancing, think again. Double- check if you will be penalized for paying off your existing mortgage early.
2) Refinancing a mortgage also means that you will pay for new loan much longer than it would have under your existing loan.
3) Refinancing a mortgage is still a debt. You have the same responsibility to pay it just like your original loan. If it means making your debt will balloon to a considerable amount, better weigh all other options first.