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Refinancing Benefits

Top Four Benefits of Refinancing

A few years ago, there was a boom in the mortgage refinance sector due to lowered interest rates. The significantly low rates made homeowners refinance without a second thought, Now that interest rates are going up, the decision to refinance may be tricky. However, there are still significant benefits to be reaped by refinancing your mortgage.

The mortgage on your home forms a significant part of your financial picture. Refinancing the mortgage can actually help you stabilize your financial outlook by providing you with appreciable savings over the life of your loan. Here’s a look at the top four benefits that refinancing your mortgage can yield.

1. Lower your interest rate

Traditional wisdom says it is time to consider refinancing if the market rate is two percentage points lower than the rate of your mortgage. However, in today’s competitive scenario, lenders are willing to offer deals on closing costs especially to homeowners with a good credit rating. You can take advantage of this scenario and refinance even for a smaller difference in interest rates. A lowered interest rate will mean a lower monthly mortgage payment which is the most common reason people opt for refinancing.

2. Lock-in your interest rate

An ARM or an adjustable-rate mortgage can sound very attractive initially in a low interest market but over a period of time, especially with rising rates, it can be counter-productive. You may have gone in for an adjustable-rate mortgage when you bought your home. But you are wiser with time and experience. Refinancing is one way to get out of an ARM and opt for the more sensible fixed-rate mortgage.

3. Lower other interest costs

Refinancing your home mortgage can provide a way of streamlining your other, more expensive debts like unsecured credit card debts. Credit card debt is significantly more expensive than mortgage debt. By refinancing, you can take the pressure off the credit card debts that may be choking your monthly cash flow situation. By opting for this, you can lower your overall interest cost and ensure a smoother monthly cash outflow.

4. Restructure your mortgage term

Even if you have carefully planned your initial mortgage, it is likely that your situation may have changed over time. Refinancing can allow you to adjust for such changes by changing the term of your payment. Loan length is usually determined by two variables: how much monthly payment you can afford and how long you plan to own your home. If you have a generous cash flow, you may choose a smaller mortgage period e.g., 15 years and save on the total interest. On the other hand if you intend to sell the house soon, you may not want to lock up too much cash and may choose a longer term. Whatever your considerations, the changed situation may warrant a new mortgage term that suits your new cash flow and plans better.

Check out the above list to determine if refinancing can benefit you in any way. Refinancing can truly ease your financial woes and allow you more money in the pocket.

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