When it comes to finances, it is always better to have a plan – that is, a structured idea of what your financial future will hold. In many cases, this plan might include the need to refinance your home, for which there are a host of possible reasons.
Whatever your current financial situation, you should take time to examine all possible solutions in order to come up with the best course of action. Sometimes refinancing your home is the best option, and sometimes there is something better that will come along. Here are a few good reasons to refinance your home.
1. Lowering Monthly Mortgage Payments
They say that we all have to “change with the times”, which is true, at least when it comes to refinancing your home. Adjusting your interest rate by only three quarters of a percent can significantly lower your monthly mortgage payments. If you have better credit now than you did at the time of your original mortgage, you might qualify for refinancing. Or, if the economy has changed, this can also lower your interest rates.
Aside from interest rates, you can also adjust the lifespan of your mortgage in order to save more in the long run. For example, if you have a thirty-year mortgage, you can drop it to 15 years and potentially save several thousand dollars. Also, if you have a traditional mortgage that includes both interest and principal payments, you can change it to an interest-only mortgage, which can also save money on monthly mortgage payments.
2. Accessing Cash
There comes a time in every home-owner’s life when the purse strings need to be tightened somewhere. Perhaps your first child is going off to college, or you have an unexpected medical expense that must be taken care of right away.
Whatever the case, you can refinance your home for a cash pay-out, which essentially means borrowing against the equity in your property. The amount that you have paid on your home thus far is called your equity, and you can access that cash by refinancing against it.
3. Paying off Credit Card Debt
In many cases, the interest on a credit card is much higher than that on a mortgage payment, which means that you are paying more in interest than necessary. Refinancing your home in order to pay off credit card debt allows you to effectively lower the interest rates on your debt. You transfer the debt from your credit cards into the mortgage on your home.
This is advisable only if your credit card interest rates are higher than that of your mortgage payments.
4. Gaining a Fixed-Rate Mortgage
It is fairly common knowledge that a fixed-rate interest is more attractive than a variable interest rate, which reflects the current economical standing. A homeowner with a fixed-rate mortgage can more easily plan for his or her financial future because it is known how much a payment will be from one month to the next.
Sometimes, refinancing your home can mean switching from a variable interest rate to a fixed interest rate, which is more desirable.
On the other hand, if you only plan on living in your home for a few years, it is not advisable to have a fixed-rate interest payment. In this case, you are paying a higher interest rate over a longer period of time when you don’t plan to maintain the investment for a long period of time. In this case, a home-owner can switch to an adjustable rate mortgage to save money in the interim.
There might be several reasons why you are considering refinancing your mortgage, and this can be a very lucrative option if you examine all of your options carefully and make the most frugal decision.