Once you’ve got your mortgage in place, you might feel like you’re stuck with those terms until it’s paid off. But by refinancing, you can replace your old mortgage with a new loan that could save you money and provide more financial stability in the long-run.
Here are 8 major benefits of a mortgage refinance:
1. Lower Your Interest Rate
Lowering your mortgage interest rate is one of the most attractive reasons to refinance. With bond markets hovering near record-lows, current mortgage rates might be lower now than when you took out the initial loan.
Refinancing with a new rate even a fraction lower than your current mortgage often provides enough savings to make a new loan worth it, after considering fees.
2. Save for Retirement Faster
Locking in a lower interest rate with a mortgage refinance means you now have more cash. Secure your financial future by taking your newfound monthly savings from a refinance and investing them into your 401k or IRA account. Investing a little bit more each month can help you reach your retirement savings goals that much faster.
3. Increase Your Monthly Pocket Money
Refinancing allows you to change the terms and length of your mortgage, meaning you can make the term longer or shorter.
You might be thinking, why make my loan term longer? Well, if you’re finding yourself strapped for cash each month, a longer loan term lessens your monthly payments, meaning you have more pocket money to spend elsewhere, like on medical expenses or college tuition. Some banks also offer unique amortization schedules – 19 or 27 years for example – so you can align your future financial plans with your mortgage.
And if your money situation changes, you can always pay more than what’s owed each month to pay down the mortgage faster.
4. Build Equity Faster
On the flip side, refinancing to a shorter loan term – meaning larger monthly payments – helps you build home equity faster. What works for you will depend on your unique financial situation.
5. Stabilize Your Monthly Mortgage Payments
A fixed-rate mortgage guarantees your mortgage bill will be the same size each month. If you currently have an adjustable-rate mortgage (ARM), consider refinancing to a fixed rate.
Given that most ARMs are currently readjusting to rates higher than fixed loans, now would be a great time to look into how much you could save.
6. Ditch Your PMI
If you’re currently paying Private Mortgage Insurance (PMI), refinancing could save you hundreds of dollars each month. Once you’ve paid off 20% or more of the home’s equity, you can refinance your home with a conventional mortgage that doesn’t require PMI.
7. Take Cash Out To:
Pay off Bills
With a cash-out refinance, borrow against your home’s equity and receive a lump-sum cash payment. The new loan size will be larger, but now you’ll have cash to pay for things like your child’s education or outstanding medical bills.
Looking to buy an investment property or a second home? A cash-out refinance of your current home could also be a great way to secure the downpayment for that property.
A cash-out refinance is a useful tool to consolidate your high-interest rate debt like credit cards, personal loans or student loans. Use the cash received from your refinance to pay down these debts and decrease your monthly bills.
Pay off Secondary Mortgages
A cash-out refinance can also come in handy to pay off an old HELOC or home equity loan.
What if you’re considering a new home equity loan? With fixed rates being where they are, you can likely secure a better rate on a cash-out refinance than through a second mortgage.
8. Remove or Add a Primary Borrower or Cosigner
In cases of marriage, divorce, or removing a co-signer you no longer need, look to refinance. Since refinancing requires a new application and loan approval, you can remove or add any parties during the process.
The Bottom Line
Refinancing your mortgage could be the smartest financial decision you make for your future. If you’re wondering what option could be the best for you based on your unique financial situation, give us a call and we’ll talk you through it.