Refinancing your mortgage can sound like a scary idea, but it can actually prove to be quite beneficial in a number of ways. But if this isn’t something you’ve done before, you may be wondering why homeowners choose to refinance their mortgages in the first place. So in this article, we’ll be talking about three of the most common reasons home loan borrowers decide to change up their mortgages.
For Better Mortgage Rates
One of the most common reasons homeowners choose to refinance their mortgages is to get a lower interest rate. Interest rates can change regularly and you may want to take advantage of current interest rates. You should talk to lenders regarding when the best time to refinance for a lower rate is—if you can get between 1% and 2% savings, that will drastically lower your monthly payments and benefit you in the long run.
Refinancers will help you shorten your mortgage terms and give you more affordable monthly payments. However, you need to be smart when you’re looking to compare rates for refinancing and ensure you’re using a reputable source. Consider using an online mortgage refinance calculator to determine monthly payments and reasonable interest rates and always look at sites that rate mortgages fairly. This way, you can be sure the information you’re looking at is reliable.
To Help Consolidate Debt
Another reason people may consider refinancing their mortgage is to help consolidate debt. While this is certainly an option, it needs to be done carefully. Choosing a cash-out plan or tapping into home equity can provide homeowners with a lump sum of cash that can then be used to pay off credit cards or student loans. This can often be a better option than taking out an additional loan, especially if the interest rates on the mortgage are lower than potential new loans.
Additionally, paying off debt can help improve your credit score and can increase the chances of being approved for better loans in the future if needed. If you’re unsure of the impact your debt has on your current finances, take a look at your credit report. And while a lower interest rate can help pay off troublesome debt, some people may fall into a spending trap and continue to rack up new debt after getting money from their current home loan. So if you refinance to tap into cash and pay off your outstanding expenses, make sure you don’t build up new debt after doing so.
For Home Remodels and Upgrades
Homeowners may also consider changing their home loans in order to pay for house renovations. This can be a good idea because remodeling adds value to the home, which will be beneficial in the long run. There are always good options for remodeling, like updating the main areas of the house and fixing important features, like the roof. And with the best refinance rate, these remodeling plans can become affordable.
Something like building an inground pool can be expensive and homeowners may not have the funds to cover the costs right away. But getting the lowest rate possible on a mortgage can help provide additional cash. This way, homeowners can become pool owners and be able to afford the necessary accessories, like a pool net cover, which can help improve safety as well as cleanliness.
Working with mortgage lenders to refinance your home loan can be beneficial in various ways, as long as it’s done properly. So if you’re considering getting a shorter term on your mortgage, trading a higher rate for something more reasonable, or even changing the type of mortgage you have, refinancing may be a good option to consider. With a new interest rate or term, you’ll be able to have more affordable payments or use the money for something else.
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