According to mortgage advisors, mortgage refinancing is one of the ways to make and save money from your home loan. When done right mortgage refinancing benefits homeowners in several ways, including reduced monthly payments and better mortgage rates
True to fact, refinancing helps to save money. However, it needs to be done for the right reasons and at the right time. Mortgage refinancing doesn’t differ as much from what was involved in the initial mortgage acquisition. Regardless, understanding how it works and the available options can help you make the right decision.
How do you know if it is the right to refinance? Below is a guide on what refinancing is, the benefits of refinancing, and when is the right time to consider refinancing.
This process involves replacing your existing mortgage with a new loan, mainly at a lesser interest rate. Mortgage refinancing allows you to reduce your monthly payments and save a lot of money on mortgage interests. In addition, mortgage refinancing helps to pay off your mortgage sooner and withdraw from your home equity in case you need cash for emergencies.
Traditionally, mortgage advice experts implored homeowners to refinance when mortgage rates fell two percentage points under the existing rate. However, this rule no longer applies today. A section of homeowners chooses to refinance their mortgages when the rates reduce by as little as 1.5% from the existing rates.
In addition, the decision to refinance depends on several factors in addition to mortgage rates. Below is a short guide to help you determine when is the right time to refinance your loan.
Signs that you should consider refinancing include:
1. You have access to better interest rates
These rates play a major role in your monthly payments. Generally, while interest rates are climbing, as evident from the past few years, they are still relatively low from a historical point of view. However, if you acquired your home before the recession, you will likely get better interest rates and save good money from refinancing.
2. Higher Credit Score
Your credit score helps to determine the interest rate you pay on your loan. The higher your credit score when you reconsider refinancing, the more you qualify for better interest rates. Refinancing helps you to access these better rates and reduce your monthly payments.
3. You Need Money for a Major Project
If you need money for a significant expense, you can carry out a cashout refinance. Cashout refinancing often features a lower interest rate than paying with a credit card or getting a personal loan.
4. You Need to Pay Less
Are you suddenly overwhelmed with the need to pay less on your mortgage? Then, refinancing can be an ideal way to put some money back in your pocket.
Benefits of Mortgage Refinancing
A refinance will typically provide one or more of the following:
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