🏦Why Refinance?

Refinancing is the process of replacing an existing mortgage with a new one that typically extends more favorable terms to the borrower. By refinancing, the borrower may be able to decrease their monthly mortgage payments, negotiate a lower interest rate, renegotiate the number of years- or term- of the loan, remove other borrowers from the loan obligation, or access cash through home equity that has built up over time.

Benefits of Refinancing

Mortgage refinancing can provide multiple benefits. These may vary between borrowers and depends on the goal they are attempting to reach. Refinancing your mortgage may bring some of the following benefits: 

Lower Your Monthly Payment

If mortgage rates happen to be lower compared to when the home was originally financed, or if the homeowner decided on an adjustable rate mortgage with a lower interest rate than the current one, the monthly payment will decrease. This is considering that the homeowner doesn't significantly shorten the loan term or cash out equity. An interest rate reduction makes a noticeable different in the payments, even if it is by one-half of a percent. 

Another way to lower your monthly mortgage payments is by extending your payoff date from what it is currently at in order to make each monthly payment at a lower price.

Build Equity Faster

If a homeowner is able and wants to make a monthly payment that is higher than their current one because of an increase in salary or good fortune, there is the possibility of switching from a 30-year mortgage to a 15 or 20 year mortgage. This allows the homeowner to build equity at a faster rate as well as saving a higher amount of money regarding the financing fees. Mortgage rates on 15-year loans are significantly lower than on 30-year mortgages, meaning there is the possibility of shortening your term without a big increase in your monthly mortgage payment.

Change The Loan Program Type

Many homeowners decide to go for an adjustable rate mortgage because of the low rates but these may increase throughout the process. The mortgage may fluctuate and homeowners may decide to switch to a fixed rate mortgage because of its increased stability. Individuals will change their loan programs in order to capitalize on the available rates that is best for them. 

Managing Your Credit

Achieving better credit scores is another benefit to refinancing your mortgage payments. If a homeowner's credit score has become higher because their mortgage payments have been made on time, this improved credit score may be used to their advantage so they are able to refinance to a loan with lower interest rates and decreased payments.

Debt consolidation that will help your credit score is another reason to do cash-out refinancing. The money from this cash-out refinance can be used in order to pay off other bills such as credit cards. This is a way of transferring the debt into the home loan considering mortgage rates are likely to be lower than credit card rates. Although, it is important to discuss this with an accountant to ensure that your home loan is structured in a way that you are allowed to deduct the interest payments from your income taxes. 

Use The Equity In Your Home

The homeowner may use a cash-out refinance loan in order to borrow against your home equity and obtain funds for any purpose. A check is received at closing and the amount of which is added onto the mortgage principle that is owed. Considering mortgage rates are typically lower than other types of debt and tax-deductible, it can be cost-efficient to borrow.

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