Are you planning to refinance your mortgage? If so, know that refinancing a mortgage means you are paying off a loan for a brand-new loan. While that might sound counter-intuitive, there are a few benefits to be earned from this. For example, some homeowners refinance to enjoy lower interest rates and pay off their mortgage faster. However, not every homeowner will require a refinance, and not every situation is fit for it.
So, before you go ahead and look for a mortgage lender, ask yourself, do you have an excellent reason to opt for a refinance to begin with?
Here are three reasons to opt for a mortgage refinance:
1. Shorten Loan Term
If you want to shorten your loan terms, a refinance can help you do just that. However, this is usually done if you find that interest rates have fallen. For this, you’ll need to do the math.
For example, a mortgage that goes for 30 years for a home of a hundred thousand dollars with a nine percent interest rate might land you approximately $805 a month. However, a refinance of 15 years instead with an interest rate of fifteen percent can land you a $817 a month payment, meaning that you do not pay that much of a difference, except that you spend half the time paying! However, a 30-year mortgage with a 5.5 percent interest rate is still lower per month compared to a 15-year 3.5 percent interest rate.
As you can see, you will need to do some math to find out which route you should go for and decide which one is more reasonable for you.
2. Converting from Fixed-Rate to Adjustable-Rate and Vice Versa
If you have opted for adjustable rates to begin with, then you might have started with lower rates. Unfortunately, this can change, and usually not for the better. You might be interested in refinancing because the rate you have started with has increased significantly.
This also works the other way around, where an adjustable-rate offering becomes lower than the fixed rate you are paying for, meaning that you will want to refinance your mortgages to enjoy the lower adjustable interest rate.
3. Lowering Interest Rates
Perhaps the most popular reason to refinance a mortgage will be to lower interest rates. In most cases, any drop in interest rate is a good enough reason to change. However, most people will say that you should only go through the effort of refinancing your mortgages if there is at least a drop of 2 percent in change.
Again, how much the drop entices you will be up to you, but even a one-percent change is good enough in our books.
Shannon Christenot Helps Los Angeles Homeowners Refinance
To summarize everything, refinance your mortgage if you want to shorten your loan’s term, if you want to convert from fixed rate to adjustable rate or the other way around, or if you want to lower your interest rate.
While it might be a bit of work to do so, we assure you that it will be well worth it, as depending on which route you go for, you’ll be saving yourself either plenty of time or plenty of money! That said, always do your research before refinancing. Ensure that you need it and can benefit from it.