6 Reasons You Should Refinance Your Mortgage
A mortgage is a loan product taken out to purchase a home and other types of real estate properties. Mortgages are offered by banks, credit unions, credit companies, and other similar financial institutions. When you apply for a mortgage, the bank or institution loaning you the money buys the land itself on which the property is built. Once they’ve purchased the land, you then pay back the loan in monthly installments, usually at a fixed rate of interest.
Most homeowners consider their home a real estate investment. But there’ll come a time when you'll wonder if you should refinance your mortgage. The reasons may differ from person to person, but there are common points that have to be considered. To help you make an informed decision, here are some of the reasons you should have your mortgage refinanced:
1. Pay For Home Renovations
A common reason homeowners decide to refinance their mortgage is to pay for home upgrades and repairs. There are plenty of benefits in home remodeling and upgrades because they enhance the functionality, appearance, and value of the property. But it can be difficult to keep up with all the expenses involved in them, especially if you also have mortgage payments to think about.
With mortgage refinancing, you'll be lowering your monthly payments, so you can afford new furniture and appliances as well as finance home repairs and renovations. Basically, you’ll be able to put whatever money you save to better use. This can be particularly helpful if you plan on expanding your house. Refinancing your Seattle home can help you pay for permits and inspections, which will allow you to increase the size of your home.
2. Get Lower Interest Rates
Among the biggest reasons you should refinance your mortgage are the current interest rates. In addition, low interest rates are usually associated with excellent mortgage deals. Hence, it's in your best interest to refinance if you're finding the current interest rates better than the ones your previous mortgage had.
However, to qualify for the said benefits, you’d need to have a decent credit history. When you refinance, you can choose a fixed or a variable interest rate. Fixed interest rates are better for people who want to reduce the amount they're paying monthly.
3. Negotiate Better Terms
Do you want to make adjustments to the terms of your current loan? There are lenders who are willing to lower your rate if you agree to new terms and conditions. Some of the changes you might encounter include reducing or extending the terms of your mortgage. It's possible to enjoy reduced monthly amortizations with your mortgage's new terms. All these options will help bring down your monthly mortgage payments and overall debt to a more manageable level.
4. Consolidate Debt
There are plenty of reasons to refinance a mortgage; one homeowner's reason may be different from yours right now. When you have too many bills to pay and you're not making enough money, it's hard to manage the piling debt. By consolidating all your debt into one payment, you'll be paying less money every month. Doing so may help you become debt-free in less time because your debt is more manageable.
Likewise, when you refinance your mortgage loan, you'll usually get a better deal on your current loan than the one you may get from a new loan. The reason for this is that your debt will be consolidated into a single loan with a single monthly payment. You’ll be able to save on the interest and other costs since you won't be paying multiple interest rates.
5. Borrow Money From Your Home Equity
If you're planning on living in your home permanently, then refinancing your mortgage loan is the way to go. Refinancing allows you to access cash from your home and pay it off in installments. You can utilize this money for your other needs. However, taking out a home equity loan isn’t a good idea if you're unable to manage payments, which means you risk foreclosure and ruining your credit score.
6. Improve Your Credit Score
If you apply and get approved for mortgage refinancing, this may give you a chance to improve your credit score. It’s because refinancing will allow you to pay off your debts at a much lower interest rate. You'll be able to clear your outstanding debt and boost your credit rating at the same time. If your credit score is already poor, however, you may not be able to qualify for lower interest rates.
Takeaway
There are many other reasons you may want to refinance your current mortgage, but these are the most prominent ones. Keep in mind that you’ll need to carefully consider all of your options before you decide whether or not to refinance your home. You should compare several mortgage lenders to find out which one will offer you the best loan terms and lowest mortgage payments. Refinancing should only be done after careful analysis and negotiation.
