3 Reasons to Refinance Your Mortgage
Taking out a mortgage is one of the biggest decisions you can make in life. It’s a long-term commitment of monthly payments that grant you home ownership. But years after signing an agreement, circumstances can change. And you might decide it’s time to adjust your contract and its terms.
Refinancing your mortgage gives you that opportunity. When you refinance, your original loan is paid off by another lender and you get a brand-new mortgage, potentially with better terms. This process could be a big financial help – it could lower your payments, lower the total amount you pay, and even shorten your mortgage.
Here are three great reasons that might make you want to refinance your mortgage.
1. Get A Lower Interest Rate
Saving money is a big reason people choose to refinance a mortgage. In fact, it’s probably the number one reason people consider refinancing. And if you’re able to secure a new, lower interest rate when you refinance, it could save you a lot of money in the long run.
With mortgage refinancing, you might secure a lower interest rate that potentially saves you thousands of dollars each year. For example, you could be paying a $300,000 mortgage over a 30-year period. With a five percent interest rate, you’ll be paying over $1610 a month. By dropping that interest rate two percent, you could be saving over $4100 per year.
Even just a one percent decrease can be worth it. A lower interest rate can also give you the opportunity to shorten the term of your mortgage. By saving money on interest, you can allot more money towards the monthly payments and pay your mortgage off sooner, if you’d like.
Companies like Amerisave currently offer low rates on refinancing, often without a hard pull of your credit. With some loan providers, you can get rates and be pre-qualified in a few minutes by entering basic information online. If your original mortgage was signed when interest rates were higher, it’s worth seeing if you could save money by refinancing at a lower rate now.
2. Shorten Your Loan’s Term
If your financial situation has changed, you might want to adjust your mortgage payments in response. Refinancing your loan gives you the opportunity to do that.
If you’re locked in on a 30-year mortgage plan but want to pay it off sooner, you can choose to increase your monthly payments. And if your revised plan lowers your interest rates, that change will make the increase in monthly payments a more feasible option. Switching to a 15-year mortgage, for example, can also help homeowners build equity faster.
Alternatively, you could lengthen the term of your loan. This would mean lower monthly payments for an extended period of time. This might be good for people who need to allot monthly funds toward other necessary expenses, and lower the stress of having to keep up with high mortgage payments when money is tight. Refinancing your mortgage should ultimately benefit you in the long run.
Several lenders, like Better.com, enable borrowers to navigate the entire refinancing process online. These companies have brought the application, approval, and closing process to a digital audience. For people who have already been through the process of getting a first mortgage and are looking to shorten their loan through refinancing, this can be a quite convenient option.
3. Switch From An Adjustable Rate To A Fixed-Rate
One of the biggest ways refinancing can alter your mortgage is with a change to the type of interest you’re paying. When you refinance, you may be able to switch to fixed-rate interest instead of adjustable-rate interest.
For those with an adjustable rate mortgage (ARM), agreements typically involve getting a lower interest rate and monthly payments for the first few years of a loan. But that lower rate doesn’t last for the entire duration of the mortgage.
Over the lifetime of an adjustable rate mortgage, your bill can increase due to climbing interest rates. Sometimes, rates can increase as much as two percent in a year. Those growing costs will ultimately cost you more over the life of your loan.
That’s why switching to a fixed-rate can be a great option for mortgage holders. This would mean your interest rate is locked in – it won’t change as long as you’re paying monthly payments. It saves money in the long term, and also puts immediate savings back in your pocket once the revised contract comes into effect.
Anything can happen, and you never know if you’ll suddenly struggle to keep up with growing interest. The fixed-rate can serve as a financial safety blanket and ensure your interest costs won’t go up.
Research Your Options Before Refinancing
Have you considered refinancing your mortgage? If not, there’s no better time than right now. No matter what your current mortgage terms are, you can change them, and potentially secure better ones, by refinancing. Homeowners can secure lower interest rates, adjust the length or term and get a fixed-rate mortgage instead of an adjustable-rate mortgage.
But before you can refinance your mortgage, you need to do your research. It’s a big financial investment, so make sure you compare various lenders and their potential rates. Calculate how much money you will save to help determine if refinancing is worth it.