Refinancing your home mortgage means paying off the remaining balance on your current loan by getting a new one. Because of this, borrowers often have a much better opportunity to get a lower interest rate. Refinancing also gives borrowers a chance to get a shorter term loan on their home mortgage, change their mortgage plan from ARM to a fixed-rate loan, or vice versa. Borrowers even have the chance to consolidate their debt. However, there are negatives to look out for when considering whether or not to refinance your home. Refinancing can cost upwards of 3 percent of the home mortgage's principal, and this process often requires that a title search, appraisal, and application fees.
To Secure a Lower Mortgage Interest Rate
One of the reasons why borrowers would choose to refinance their mortgage is to have a chance to lower their current loan's interest rate. Reducing your home mortgage's interest rate not only helps you save more money, it also increases the speed with which you build your home's equity. In fact, refinancing can even decrease your monthly payments.
To Shorten Your Home Loan's Term
As soon as the home loan's interest rates fall, borrowers will now have the chance to refinance their existing home mortgage for an entirely different loan, without any significant changes in the monthly payments but in a much shorter term.
Adjustable-Rate and Fixed-Rate Conversion
Although ARMs would initially offer much lower rates compared to a fixed-rate mortgage, there are always periodic adjustments which often results in an increase in interest rates. However, choosing to refinance your ARM plan would result in a much lower interest rate and would even eliminate any concern over future mortgage interest increase.
However, changing a fixed-rate home loan to an ARM can be a great financial strategy, especially if the interest rate is falling. According to most brokers, if mortgage rates continue to fall, the rate adjustments on an adjustable-rate mortgage would decrease, and so would the mortgage payments. Now, changing a fixed-rate home loan to an ARM may be a great alternative for borrowers who don't have any plans on staying in their real estate properties for more than a decade.
Consolidating Debt and Tapping Equity
Although the previously mentioned reasons for refinancing are all great alternative ideas, refinancing your home mortgage can be a bit tricky. It's important that you keep an open mind and consider refinancing to consolidate debt.<< Back to the list.
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