Lowering the rate
The mortgage interest rate that you’ve been paying may be higher than what’s available on the current market, so it may make sense to refinance to a new low rate. If you’ve recently improved your credit score and financial situation, mortgage refinancing may be the right move because you’ll be able to snare a better rate. It will reduce your monthly payment, and could lower your total interest costs.
Building equity more quickly
In certain scenarios, a higher monthly mortgage payment can have financial benefits. The higher payment allows you to build equity and reduce debt faster. The combination of higher equity and lower debt adds stability to your overall financial picture. You can achieve this goal by restructuring your home loan into a shorter maturity. The traditional choice is a 15 year mortgage, because they have slightly lower interest rates than 30 year loans. Your monthly payment would still be higher because you’d be paying the debt off over a shorter period of time, but your total interest costs would be substantially lower.
Raising cash
Cash out mortgage refinancing is a viable option when you need money to purchase a long-term asset. Examples are home renovations, a college degree, and real estate property. Cash out mortgage refinancing doesn’t make sense for vacations, clothes, and cars.
Lowering your risk
Mortgage refinancing to a fixed rate mortgage can reduce risk if you currently have a balloon payment loan or adjustable rate mortgage (ARM). Today’s low inflation level may make your ARM seem pretty attractive, but there’s no telling what could happen in a few years. Balloon payments are scary because you can’t predict what the lending environment will be like when your big payment comes due.
Consolidating debt
If you have two mortgages, consider consolidating them into one with mortgage refinancing. Your goal is to have an overall lower interest rate and payment, assuming that you have at least 20 percent equity in your home.
Mortgage refinancing is a good way to build equity faster, finance a long-term asset, and to lower your rate, your overall interest costs, or your risk. These could all be considered “right” reasons. However, which one is the right reason for you and what is the best way to do it? Call one of our mortgage refinancing specialists in order to pinpoint where you should be heading next!
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