If you have decided on buying a house, the first thing you need to look out for is mortgage to finance your home. Refinancing involves taking a new mortgage to pay off an unpaid mortgage. You can also save a lot of money as well as reduce the monthly payments enabling you to clear your other debts.
The money saved through refinancing can be used for expenditures like refurbishing, renovation of the house or higher education. Refinance does not change your current mortgage, it helps in paying off the outstanding one.
Though the benefits are immense, it should be kept in mind that if you are not staying in the house for which you have taken the mortgage and refinancing, it is not feasible due to the high refinancing costs.
Benefits of Refinancing Your Mortgage
If you have a loan you need to keep a track of the changes in the interest rates and keep comparing them with the rate of the loan. As interest rates keep changing, refinancing is a better option. Mortgage refinancing helps in reducing the amount to be paid; in turn reducing the risk.
If your loan was taken at high risk, refinancing helps in getting a cheaper loan. Also, in case of a need for money or there is a variable rate loan, mortgage refinancing on the current loan to set it as a fixed rate loan is the best option.
Reasons for Refinancing
- Changing an adjustable-rate mortgage (ARM) to a fixed-rate mortgage (FRM)
- Reducing the interest rate to save money. If the mortgage taken has higher interest rate than the present interest rates, you need to refinance. If a mortgage is taken at a lower rate, the monthly payments will be reduced.
- It is viable to change an ARM to another ARM with better features or lower interest rates as they restrict the increase in the interest rates or monthly payment which is called CAPS. If the market offers a better ARM with a lower cap, it will help in reducing the monthly payment, creating more savings.
- You can transfer your equity to cash.
- It helps in developing your equity faster. If you have savings after you have taken a mortgage, you can convert the existing mortgage to a short term mortgage so you can own your house faster. Though the monthly payment might be more, you will be saving more money as you will pay less interest at a lower interest rate.