Many people get tempted to refinance their mortgages when they discover lower interest rates. Lower interest rates are undoubtedly enticing and can cut down your monthly payments, but there are also many other factors to contemplate.
Choosing whether to refinance is not an easy decision as it can save or cost you more money; hence you need to be prudent. Refinancing involves replacing the first mortgage with a new one; therefore, it’s vital to be on top of the situation.
With that said, here are the reasons why refinancing is a good option.
- PAYMENT REDUCTION
Refinancing into a lower interest rate translates to less pay over the span of your mortgage since a lower interest rate results in reduced payment as far as interest is concerned. There are many advantages to refinancing a loan. Most often, you’ll be required to make a small monthly payment if you refinance your loan to a reduced interest rate and opt for a 30-year mortgage term.
- STABILIZATION OF INTEREST RATE
Many homeowners opt to refinance in a bid to shift from adjustable-rate mortgage (ARM) to a new fixed-rate loan because the interest rates of the former keep increasing, leading to a higher monthly payment over the loan term. With a fixed rate, the interest rate and monthly payment remain constant, making it easy for homeowners to plan for their monthly expenses.
- FASTER HOME REPAYMENT
With refinance, you can shorten the lifespan of your loan, let’s say from 30 years to 15 years. This allows you to complete loan repayment within the shortest time possible and own your home outright. In addition, shortening the span of your loan can save you money in interest payment down the road.
- ABILITY TO DO AWAY WITH A HELOC
With refinancing and agreement with the lender, you can merge the first and second loans on your property into one. This can smoothen your payments and even make your finances somewhat simpler.