Advantages of Getting a Mortgage Refinance

When homeowners decide to refinance their mortgage, their chief concern is to get lower interest rates. It is true that refinancing is a great way to get lower rates, but there are several other benefits as well.

If the interest rate on your existing mortgage is 6 percent and you can reduce it to 5 percent by refinancing, you should definitely go for it. Besides reducing your monthly mortgage payments, mortgage refinancing is ideal for long term cost savings. Here are some of the benefits of getting a refinance.

You can reduce the term of the loan

When you refinance, you get to reduce the term of your home loan. You can, for example, go from a 30-year term to a 15-year term. And when you reduce the term, you get lower interest rates. This will also reduce your interest costs. Your monthly payments will go up, but you will be able to pay off the loan faster. As a result, you can build up equity faster.

You get to switch from an adjustable mortgage to a fixed interest rate mortgage

It is true that ARMs have low interest rates during the initial period. But the rates can go up significantly when the loan resets. Worse still, there is no way you can predict what the rates will be five or ten years from now.

If you have an adjustable mortgage, you will be able to switch to a fixed interest rate mortgage when you get a refinance. This will also ensure your piece of mind.

Cash-out refinancing

If you get a cash-out home loan refinance, you will be able to turn your home's equity into cash. The value of your home may have appreciated over the years. If you feel that you have accumulated considerable equity, you can refinance the home at its current value and pocket the difference. You will be able to use that money for a home remodeling project or something similar. Make sure that you do not use this amount to splurge on unnecessary items. If you are not a disciplined borrower, a cash-out refinance will land you in even deeper debts.

Consolidate two loans

When you get refinance, you can consolidate your main home loan and a home equity loan. This will allow you to get an even lower monthly payment. In addition, you will need to make only one payment per month.

Recover from divorce

You and your spouse may be co-owners of the property. While there is nothing wrong with that arrangement, problems can arise if you decide to divorce. If, after divorce your ex-spouse doesn't contribute his/her share of the monthly payment, you will be in trouble. In this case, if you get refinance, you will have sole ownership over the property if you decide to keep the home.

If at least one of the above reasons appeals to you, you should consider the possibility of getting a refinance. Call your current lender and ask if they are willing to offer you lower rates. If they aren't, you should consider other lenders. You can search for lenders online. You should also consider contacting community banks. Whether you stick with your current lender or not, you can save a lot of money by getting a refinance provided that you have got the right reasons.