Refinancing an existing mortgage with a new loan can offer homeowners many different advantages. Here are some of the advantages to refinancing your mortgage:
Changes in the lender’s terms. Different lenders will have different terms and conditions when refinancing an existing mortgage. As you may know, the present interest rate, closing costs, etc., can be a significant factor in deciding whether to refinance or not.
A new loan with a lower interest rate. As you can imagine, refinance is often more affordable if you borrow a lower rate of interest than the one that was in place when you bought your home.
Less risk for the homeowner. If the rate of interest has gone up recently, it will be less risky for you to pay off the mortgage on a new loan, since you won’t be saddled with more monthly payments. Additionally, a lower rate of interest should make it easier to pay off your mortgage by the end of the term.
Reducing your debt ratio. With a lower interest rate, the amount of debt that you have available to you will likely be lower, which can help to keep your debt ratio lower than when you originally acquired the loan.
Lower closing costs. Since you are using a loan that carries a lower interest rate, you should be able to save money through the closing process, since the mortgage lender is not making as much profit off of your existing mortgage.
More available equity. If you are purchasing a second home or buying a home with equity in your own home, refinancing your mortgage can give you more equity to use for your new purchase.
Reduced rate of interest. Although you will still be paying a higher rate of interest, your payment structure will be more favorable. This will allow you to have more money in your pocket at the end of the month.
You’ll be able to better manage your finances. By using the funds you will save by refinancing your mortgage to pay off your credit card or other personal debts, you will be in a better position to meet your goals for managing your money and financial capability.
Puts you in a better position financially if the economy deteriorates. If you have a lower interest rate, the fact that you’re paying less out of your pocket for your mortgage means that you’ll be able to afford less expensive items.
Credit score may be boosted. If you are paying off a mortgage on a new property, having the extra cash will likely boost your credit score, giving you a better chance of getting better rates on loans in the future.
In order to determine if a mortgage refinance is right for you, it’s important to consult with a reputable financial advisor who can evaluate your situation and give you advice on how to best use the money you saved. The best advice is always to weigh your options carefully and make sure that the refinance is for the best interests of you and your family.