Interest rates are unpredictable. One can’t tell the exact moment that they’ll jump up or go down. It begs the question, then: when is the right time to refinance a mortgage?
With a mortgage refinance, a borrower can pay off their current mortgage and receive a new one with different terms and conditions all in one swoop. In fact, refinancing pays off in the long run since it could save a borrower a significant amount of money in interest and years of mortgage debt repayment. What are some of the reasons why you should refinance a mortgage sooner rather than later, then?
Lower Interest Rates
Getting a lower interest rate is the most common reason for refinancing a mortgage. By trading in a higher interest rate for a lower one, you can save a higher amount on your monthly mortgage payments. In fact, lenders believe that 1% savings are already a good enough incentive to refinance. Additionally, securing a lower interest rate not only helps in saving money — it also allows homeowners to build equity faster.
Switch Mortgage Types
By choosing to refinance, homeowners have the liberty to change their mortgage program and take advantage of the benefits of other loan types. For instance, changing from an adjustable rate mortgage to a fixed-rate mortgage gives a borrower the benefits of locking into a rate that won’t fluctuate, while being able to count on a consistent monthly payment due.
Finance Your Home Improvement Plans
With enough equity in your home, it is possible for you to do a cash-out refinance to complete the home improvement project you’ve always been dreaming about. With cash-out refinance, you get a new mortgage loan with a larger amount than the existing one, while getting to keep the difference between the two in cash. In fact, a majority of homeowners prefer a cash-out refinance to a home equity line of credit because it usually comes with lower interest.
Refinancing is a valuable tool in keeping debt under control. Mortgage-savvy homeowners would be wise to refinance their mortgages since it allows them to reduce debt and shorten the terms of a loan.