Refinancing your mortgage can have a variety of positive effects on your finances. Whether you are trying to lower your interest rate or loan term or looking for funds for a home renovation project, refinancing can be a great option.
When should you refinance your mortgage? The answer is different for everyone. Keep reading to see our top reasons for making this choice.
What Does It Mean to Refinance Your Mortgage?
When you refinance your home, you are paying off the previous loan and obtaining a new one. That new loan might have a better interest rate or a shorter term.
When you refinance your home mortgage, you go through many processes you completed when you first obtained your original loan. There will be application fees, an appraisal, and a title search. You’ll also be paying a small percentage of the loan’s principal (3-6%).
When you refinance, you can tap into the equity on your house to pay for things like emergency repairs or renovation projects.
Shortening Your Loan’s Term
Some people want to refinance their home mortgage to shorten their loan term. You may want to switch from a thirty-year to a fifteen-year term.
If your interest rates and PMI are lowered enough in the refinancing, you may even be able to shorten your loan term when a minimal rise in your monthly mortgage payment.
Lowering Your Interest Rate
One of the most popular reasons people apply for mortgage refinancing is to lower their interest rates and get rid of their PMI.
Many people’s financial situations improve as they get older and advance in their careers. If you were unable to put down a large down payment on your original mortgage, or your credit score was less than stellar, you might have a high-interest rate on your mortgage.
By refinancing, you can obtain a lower interest rate that can save you thousands of dollars in mortgage payments.
Consolidating Your Debt
Replacing high-interest debt with low-interest debt is an attractive opportunity for many people. The opportunity to receive funds for medical procedures, college tuition, or renovations is also appealing!
It is important that you work with trustworthy financial institutions and professionals (like at calstatelender.com), and that you do your research and planning. This can help ensure that you do not fall into more debt during and after your refinancing!
When Should You Refinance Your Mortgage?
Are you able to pay the upfront closing costs of refinancing? Do you have a plan in place for the additional funds you’ll be spending? If so, then you may be ready to refinance.
Keep in mind that the answer to, “when should you refinance your mortgage” is different for every person. Learn as much as you can and don’t be afraid to talk to a financial expert before making this kind of decision! If you are interested in learning more about money, real estate, and more, head over to our Finance page for more articles like this!