Why You Should Consider Refinancing Your Home Loan

Veola Zeller By Veola Zeller, 13th Nov 2013 | Follow this author | RSS Feed | Short URL http://nut.bz/26coisx7/
Posted in Wikinut>Money>Loans

Refinancing your home loan can reduce your mortgage payment, shorten the term of your loan and allow you to build equity more quickly. This article highlights the advantages of refinancing. It will help you figure out if refinancing is the right move for you.

Introduction

By refinancing a home loan, you pay off the original mortgage and replace it with a new one. The new loan could have different terms and lower interest rates, so it can be a good financial move. It will be easier to refinance than it was to obtain your current loan. If you have owned your property for a while, you have some equity – making refinancing easier. Side benefits of refinancing include getting rid of private mortgage insurance and switching to a fixed rate loan.

Consider your financial situation and what you want to accomplish with a refinance. Shop around for a loan you’re eligible for to find out if you will be able to reach your goals. Take a look at our list of reasons why you should consider refinancing, below.

A lower interest rate

A lot of people refinance for a lower interest rate. The classic rule of thumb is that it is worth the money to refinance if you can reduce your interest rate by at least 2%. If you reduce your interest rate, you will save money and enjoy a lower monthly payment. Also, you will increase the rate at which you build equity in your home.

Shorter loan term

You may want to consider refinancing a home loan to shorten the loan’s term. Even if the difference in the monthly payment won’t seem worth it, you can reduce the term of a loan by even half. Paying for 15 years instead of 30 sounds like a good improvement on your current mortgage.

Getting rid of PMI

If you couldn’t afford a 20 percent down payment, you were most likely stuck with paying private mortgage insurance (PMI). By refinancing, you can get rid of this expense. If your lender won’t remove the PMI even after you make regular payments and achieve 20 percent equity, refinancing may be the way to go.

Switch to a fixed rate loan

A lot of people start out with an adjustable-rate mortgage, in order to benefit from the initial low rate. They then refinance into a fixed rate product, which protects them from rising interest rates in the future. Not to mention that fixed payments are way easier to plan.

Cash out home equity

Cashing out home equity by refinancing your mortgage is a smart move if you plan to cover a big expense or buy another property. If you are financially responsible and pay off your debt regularly, this may be the way to go. Set some long-term financial goals and decide if this is the best step for you.

Of course, there are also reasons against refinancing a home loan. For example, if you are not planning on living in your home for much longer or if the amount of money you’ll save isn’t satisfactory, you should stick to your current loan. Keep in mind that refinancing comes with certain costs, so take them into consideration as well. Carefully assess your financial situation and decide if refinancing is the right move for you.

Tags

Home Loans, Loans, Mortgage Insurance, Mortgage Loan, Mortgage Payment, Mortgage Rates, Refinancing, Refinancing A Home Loan

Meet the author

author avatar Veola Zeller
Veola Zeller is a blogger based in New Mexico. Her many interests include sustainable living, gardening and romance books. Avid Need for Speed player.

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