The Many Benefits of Refinancing

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The ultra-low mortgage rates that we have been seeing lately in the real estate market are not only benefiting homebuyers. Current homeowners wanting to save more money on their monthly mortgage loan payments are taking advantage of low interest rates by refinancing. However, saving on mortgage rates is not the sole good reason to consider refinancing. The thing about refinancing is that it provides mortgage holders with a variety of options, and it is a great idea for all homeowners to explore them and seize the benefits that come with refinancing. Even if taking out a brand spanking new mortgage to replace a current one doesn’t sound appealing or make complete sense based on interest rates alone, the other benefits refinancing provides should not be overlooked. Do not ignore the opportunities!

Shortening or lengthening your term length
While refinancing lower mortgage rates can affect how much money a borrower is obligated to pay on their home loan every month, shortening or increasing the term length can have an even more drastic effect on monthly payments, allowing for more savings. Increasing the term length will result in lower monthly payments because it gives borrowers a longer time period to repay their mortgage loan. However, it is crucial to keep in mind that longer term lengths will ultimately mean more money spent overall due to the fact that it gives interest more time to build on the overall mortgage balance. In addition, shorter term lengths can generally mean lower interest rates and are significantly better for building equity in a home at a faster pace (more on the bonuses of home equity later).

Switching from an adjustable-rate mortgage to a fixed-rate mortgage
More often than not, mortgage borrowers may have initially opted for an adjustable-rate mortgage so that they were able to obtain a lower interest rate. However, refinancing gives these same borrowers the chance to guarantee or lock in current low rates with a fixed-rate mortgage, while at the same time avoiding the rate fluctuations that come with an adjustable-rate mortgage. This is a safer long-term decision and is the most logical for homeowners who plan on staying with their current property for a number of years to come.

Gaining home equity
While a mortgage borrower pays off their remaining balance, they are building equity in their home. This represents the monetary value difference between what they still owe on a mortgage and what a home is worth. Then there is something called cash-out refinancing. Cash-out refinancing is when a homeowner refinances for a larger amount than what they owe on their home and it allows homeowners to access this equity in the form of a cash payment. There are several good reasons to access home equity, whether it be to make home improvements or renovations or to put money toward a child’s educational future. In addition, many homeowners use home equity as a payment towards consolidating their debt. Instead of paying high interest rates on a number of other debts, homeowners may opt to switch to paying off one loan with a low interest rate.

Home Mortgage Refinance

Making the right decision for your situation
While refinancing can have many benefits for homeowners, it may not be the most ideal decision for everyone. One way to figure out whether refinancing makes financial and logical sense is by taking advantage of online mortgage calculators and doing some preliminary research. An online mortgage calculator can allow borrowers to plug in pertinent information such as property value, current mortgage balance, current mortgage rate, length of term remaining, etc. and find out whether refinancing suits their needs or not.

These free tools that are available online also allow borrowers to play around with different elements of their mortgage, discovering how things like mortgage rate, term length and payment amount can help or hinder their monthly finances.

In addition, it’s important for borrowers to find out exactly what kind of prepayment penalty they may face for opting for refinancing their mortgage loan. If a homeowner is charged an exorbitant fee for breaking their current loan terms, they should make sure that the savings they will be getting on their new loan are worth it and make financial and logical sense.