Acquiring a home through a mortgage loan is not an easy feat. For one, getting a home loan is already a big challenge for many, but the hurdle does not stop there. Mortgage loans take years before borrowers get to pay them entirely. During those lengthy paying periods, people’s life circumstances change, and sometimes, a change in plan is necessary.
To some people, refinancing their mortgage is the best answer to their financial concerns. Refinancing is an option to get a new loan to trade your old mortgage in a new balance. In this setup, the bank or lender pays off your old mortgage using your new one while you enjoy the possibility of a lower interest.
If you are thinking about following the same route, you might wonder how you would know if refinancing is for you. After all, this option is not always the best option for all.
When Is Refinancing Your Mortgage Good for You
Before you decide, here are some good reasons people opt for refinancing:
1: You Want a Change in Loan Term
Home mortgages last for 15 to 30 years. If you are unhappy with your current mortgage term or any of its terms changed, one option you have is to get a new loan through the refinancing option. Whether you want a longer mortgage term or a much shorter one, refinancing might be the answer you need.
Since you already paid a few years off, your house’s value has already increased, and your credit has improved over time, you can get a much better payment term. The longer the term you choose, the lower the payment you have to deal with each month. Still, the final amount you need to pay would depend on the interest rate and other factors.
2: You Want a Fixed-Rate Mortgage
There are two types of interest rates when getting a home loan. You can get an adjustable rate that is typically the lowest interest rate in the first few months but can fluctuate, depending on the economic movements. Or you can get a fixed one that would determine the exact amount you have to pay over the years.
3: You Need Cash
If you have been paying your mortgage for years now, your house’s equity should have also increased throughout the years. If you have been paying the house for more than five years already, you can finally enjoy your home equity. You can get it in cash if you need it and are free to use the money however you want. Clients usually use theirs to pay off all their other debts or loan principal. That way, they only have the mortgage loan left to pay.
Another common reason they use the cash is to make home renovations or improvements. Making changes around the house always comes with a price. Since there is a chance for you to get your home equity in advance and replace your loan with a lower interest rate, the refinancing option is much better than getting a personal loan or a higher interest rate from using a credit card.
4: You Want to Increase Your Retirement Savings
The great thing about investing is that it is unpredictable, yet there is a general rule that the earlier you save and the bigger your investment is, the higher your investment results. If you want to take advantage of that, you can place your equity first in your retirement investment while not putting it in any other use. Let it grow and accumulate interest before you use it for other means.
If you see yourself wanting to experience the advantages mentioned above, then perhaps getting refinancing would be better for you. Before you agree, though, make sure that you see the setup from a long-term perspective and assess whether or not it would be a good long-term plan. More importantly, do not forget to evaluate your current financial situation and understand how the new option works.
Refinancing is another mortgage loan process, which means you have to undergo a similar approach as your first loan. But at Sam Lends Money, you do not have to worry. We specialize in various home financing products, which makes us well-versed in the refinancing option. We can provide you with the knowledge and resources to choose your best-matched loan option with confidence. Contact us today to learn more.