What Does it Mean to Refinance Your Mortgage?
“Refinancing works by giving a homeowner access to a new mortgage loan which replaces the existing one. The details of the new mortgage loan can be customized by the homeowner, include the new loan’s mortgage rate, loan length in years, and amount borrowed. Refinances can reduce a homeowner’s monthly mortgage payment, access cash for home improvements, and cancel mortgage insurance premiums, among other uses.”
Now that you know what refinancing is, the real question remains: Is it a good option for you?
Reasons To Refinance Your Home
- You Want To Shorten Your Loan’s Term
Refinancing for a shorter loan term can help you pay off your home sooner and pay less in interest overall.
If you have disposable income and a stable job, this could be a wise decision that will save you money in the long run.
But make sure you carefully weigh out the pros and cons here – shortening your loan term will mean higher monthly mortgage payments.
- You Want To Secure A Lower Interest Rate
Obtaining a lower interest rate is a great reason to refinance your home, and if your credit has improved since you first took out your mortgage, you can save yourself a significant amount of cash over the course of your loan.
If you can reduce your interest rate by 2% or more, it may be worth it for you to refinance.
- You Want To Consolidate Debt
Refinancing your home to consolidate debt can be a good move for many people, but there are a lot of factors to consider. Taking a close look at the type of debt you have, your current interest rates, and the value of your home will help you determine if refinancing for debt consolidation is a good choice for you.
Money Under 30 says,“Here’s the most important consideration: If you lose your job or take out a refinancing loan that you can’t afford, you are much more likely to lose your house than if you were to declare bankruptcy due to excessive personal debt.”
Debt consolidation can allow homeowners to pay off their debts quickly and with less interest. Just make sure you consult with a qualified mortgage specialist before making any concrete decisions about refinancing for this reason.
Refinancing a home can be a great choice that might save you tens of thousands of dollars in the long run.
However, it’s important to understand that each homeowners situation is different, and we would advise you to do your research and ask a professional mortgage consultant plenty of questions before you refinance.