Reasons to Refinance

You’ve heard about refinancing and home equity and all of that second-mortgage jargon, but you are not sure whether or not you are a good candidate for any of it. What benefits will you get from it, why should you consider it? Well, there numerous answers to these questions. But if you want a better understanding of the overall refinance-picture, there are a few common reasons for refinancing that you should know.

Many mortgage borrowers refinance to shorten the term of their mortgage. If you obtain a 15-year loan instead of a 30-year loan, you are able to pay off your loan faster meanwhile paying lower interest. You will obtain equity much faster should you ever want to “cash out.”

If you refinance for more than the remaining balance on your old loan, you will be tapping into your equity that you can use for things such as home improvements, college or auto loans, or other important investments. You can open an equity loan and receive a lump sum of the equity or apply for an equity line of credit, which allows you to charge your equity and take it out on an as-needed basis.

Many home owners refinance to change their adjustable-rate mortgage to a fixed-rate mortgage. You will reduce your payment by doing this, and if you do so at the right time, you will lock in a very competitive rate that will stay the same for the rest of your loan.

A lot of mortgage borrowers refinance when the market is good. If the rates are low, refinancing can be a good option to obtain those desired rates. If the rates are high, some will refinance to avoid the fluctuating market and get a fixed rate that will not change again.

Remember that you do have to pay refinancing costs which are similar to the costs you paid to close on your first mortgage. This may affect your decision to refinance to save. You will want to think about all of the costs and savings, to see if you are really saving, spending or merely breaking even.

As with your original home loan, the mortgage company will offer you a range of different interest rates dependent upon discount points you pay to lower the rates. One point should equal one percent of the loan amount. Four points on a $100,000 mortgage should be $4,000 of refinancing. Although discount points are costly at the time, they will lower your interest rate for the rest of your loan’s life.