Are you considering the thought of refinancing your mortgage? Before you make a decision, take a strong look at the potential advantages of doing so.
There are times when this makes good sense, and times when you would be better off sticking with your current loan. The decision is up to you, however, you have to know how your finances will be impacted regardless of the decision you make.
Lower your Interest Rate
Let’s face it: one of the biggest benefits of refinancing your mortgage is the ability to lower your interest rate. For example, if you currently have a rate of six percent you may be able to refinance to somewhere in the four to five percent range.
Not only could this go a long way in lowering your payment, but it will ensure that you don’t pay nearly as much in interest over the life of the loan.
Shorter Term
Wouldn’t it be great if you could pay off your mortgage sooner than you thought possible? Rather than continue to dream about this, consider refinancing your loan as a means of making this come true.
If you have 25 years left on a 30 year mortgage, it will be a while before your home is paid off. By refinancing into a 15 year mortgage, you can shave 10 years off your repayment period. Best yet, you may be able to keep your payment reasonable due to lower rates associated with shorter term loans.
Build Equity Faster
Are you comfortable with your ability to make a higher monthly payment? Refinancing to a 15 or 20 year mortgage may increase your payment, but it will also allow you to build equity faster.
As noted above, if you can secure a lower rate, even if your term is shorter the payment may not be much higher than what you are paying now.
Change the Type of Loan
Did you opt for an adjustable rate mortgage when buying your home? Are you ready to make the change to a fixed rate mortgage? Refinancing is your best option for doing so.
Many homeowners opt for an adjustable rate mortgage upfront because of the low rates at the beginning of the loan. Unfortunately, when this adjusts these people often times find themselves in a bad position. By refinancing to a fixed rate mortgage, there is no more guessing as to what your monthly payment will be.
My Experience
When I purchased my second home, interest rates were hovering around six percent. While I had no problem with this at the time of closing, after a couple of years I realized that refinancing would be in my best interest.
The first thing I did was make sure I was comfortable moving from a 30 year mortgage to a 20 year mortgage. Once I crunched the numbers, it was time to get in touch with a qualified lender (I compared five, both local and national).
After going through the application process, I found that I was able to reduce my rate to 4.75 percent. This was a cause for celebration. After all, getting an interest rate in the “4’s” was something I never thought was possible.
When everything was said and done, here is where I stood:
- My monthly payment was $125 higher
- My interest rate was 1.25 percent lower
- I knocked just about eight years off of my repayment period
It was disappointing that my monthly payment increased by $125, but when compared to the benefits it was easy to swallow. Not only was I paying out less in interest every month (which allowed me to build equity faster), but my loan would be paid off eight years quicker.
Now that you know the benefits of refinancing, as well as how this positively impacted my financial situation, now is the time to consider this move. If you are ready to get started, check out refinancing rates in your area.