If you’ve lived in your home for a while, you’ve probably considered refinancing. The number one reason that many people refinance is to get a lower interest rate. A lower rate equals lower payments, which means you’ll ultimately save thousands of dollars in the long run. Here are the main benefits to refinancing your mortgage.
Benefits to Refinancing Your Mortgage
Lower Interest Rate
One of the biggest benefits to refinancing your mortgage is a lower interest rate. With rates staying relatively low, there has never been a better time to consider refinancing your mortgage. Refinancing can not only save you money in terms of interest rate, but can also increase the rate in which you build equity in your home. To calculate equity in your home, subtract any outstanding loan balances from your home’s market value.
Get Rid of Mortgage Insurance
If you were a first time home buyer when you closed on your home, and went with an FHA loan, you’re likely stuck with a lofty mortgage insurance monthly payment. This payment is to protect the lender as you didn’t put the full 20% down upon closing. Now, it’s important to make sure that the new interest rate does not exceed your current payment. Then you would be refinancing all for not.
Access to Built Up Funds
In some cases, homeowners will refinance to get access to the money they have stored in home equity. As you pay back mortgage, you gradually own more and more of the home. A cash out refinance enables you to take some or all equity out to use it for say, home improvement, credit card debt, student loans, or to cover an emergency. This cash out option is a bit risky though. On the plus side, you could pay off high interest debt like credit card debt, however, you would be trading in an unsecured debt for a secured debt. If you miss a credit card payment, you may get dinged on your credit score. If you miss a mortgage payment, you could lose your home. So really think about if taking out the cash would put you in a better situation than you are in now.
Refinancing isn’t for everyone. It takes plenty of detail, and lots of paperwork. Remember all the paperwork you needed to collect when you close don your home? It’s that over again. However, if refinancing will realistically save you thousands of dollars over time or simplify your loan, it’s worth taking the leap. Talk with your lender to see if refinancing is for you.
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