Your home mortgage may last for 30 years but many house owners may not wish to stay with such a loan for so long. In the USA according to the Mortgage Bankers Association, the average American refinances his/her mortgage every 4 years. Opting for a new mortgage implies a lot of savings in the next few years. However, mortgage refinance experts at state that this comes at a price.
The following are the sole reasons why you should opt for mortgage refinancing for your home-
- To get a fixed lower rate– If you had taken your fixed rate mortgage some years back and the interest rates have reduced mortgage refinancing may reduce payments considerably. For instance, a $150,000 mortgage with a 30-year term with a rate of 8% carries a monthly payment of $1100. This same mortgage at 6% will have a monthly payment of $900- a reduced sum.
- Switching to a fixed rate or an adjustable rate mortgage- Adjustable rate mortgages or ARMs provide you with low interest rates in the beginning however for some people the fluctuations may be reason for stress. If the rates increase, you might consider opting for a fixed rate and making steady payments every month. On the other hand, if you wish to reduce the amount of monthly payments and comfortable with fluctuating interest rates of an ARM, refinancing to an ARM will save you money.
- For improving features of your ARM- The ARM mortgage comes will protective caps to limit the increase of your payments in a given year and across the complete term of the loan. Our experts state that if you are not happy with your caps, you may revise them for favorable features on refinance.
- Faster home equity- Recent changes in your financial situation may make it possible for you to increase mortgage payments if you are willing to refinance your mortgage for a shorter term. The high payments will help you pay off the home loan faster and you can save a lot on the interest rates in the long term. However, you also have the choice of not opting for refinance and simply pay more towards the principal each month.
- Lower payments per month-If you refinance for a longer term, you can reduce the payment amounts every month. You may land up paying more in interest over the duration of the loan however this option can be resorted to when you face difficulties making current payments. This strategy does give you some relief.
- Convert Home Equity Into Money- You may wish to take out a fresh mortgage with a bigger principal to turn some of your home equity into money to cater to a major expense. This is known as cash-out refinancing. The advantage here is you get a lower rate of interest over a credit card or an unsecured loan. However, experts insist that you should opt for a home equity loan or line of credit of the refinanced mortgage is more over the higher rate.