Refinancing can be defined as the process of availing a new loan to pay off an existing one. Most borrowers opt home refinancing to lower interest rates and to shorten the loan term.
Refinancing can be defined as the process of availing a new loan to pay off an existing one. Refinancing provides a lot of benefits which differ between borrowers. Home refinancing is usually taken for two reasons:
Some of the major benefits of refinancing a home loan include:
Better mortgage rates:
The most common reason for refinancing is to obtain a better mortgage value. If the economic scenario indicates that the mortgage rates will fall, you can save money by refinancing your mortgage into a new loan at current rates.
Low monthly payments:
Lowering your interest rate also lowers the monthly payment. One can also lower his or her monthly payments by increasing the loan term.
More predicable costs:
You can always change your loan to a fixed term loan if you currently have an adjustable rate mortgage. In case there is a possible rise in the interest rates in future, you don’t have to worry as the fixed term loan will enable you to continue paying the smaller amount.
Shorten the loan term:
Most borrowers start with a 30 year loan term and then refinance it to a 15 year fixed mortgage which enables them to pay the loan faster and save money in interests over the loan term. Mortgage rates for a 15 year fixed term are much lower than the 30 year mortgage terms. So this enables the borrowers to shorten the loan term without increasing the monthly payment.
Cash out refinance enables borrowers to borrow cash against their home equity to obtain funds to pay off bonds, existing debts, home improvement etc.
Mortgage refinancing helps borrowers to take cash out refinance to pay off existing debts to reduce total monthly payments or to save money on interest. These mortgage rates are usually lesser than the interest rates paid for credit cards so this enables borrowers to save a lot of money.
One can also reduce their monthly payments by increasing the loan term. Mortgage refinancing enables borrowers to repay the loans over longer terms upto 30 years.
Combine two mortgages into one mortgage:
Mortgage refinancing also allows borrowers to combine a second mortgage into an existing mortgage at a lower rate. This is basically used to pay off a secondary mortgage so it does not reduce the home equity. It enables borrowers to pay a single monthly payment instead of two or more.