Here’s Why You Should Refinance Your Mortgage
Is paying off your mortgage a major hassle? Mortgages that initially seemed like a good deal can quickly become financial burdens for many property owners. It is possible to reduce interest rates, shorten the length of your mortgage, or even change your loan entirely if you refinance your mortgage.
Refinancing isn’t for everyone, but it can save you a lot of money if you do it right. Consider the following reasons if you’re undecided about refinancing your new mortgage.
Reasons to Refinance Your Mortgage
Here are 3 reasons why you should refinance your mortgage.
1. Negotiate a Lower Interest Rate
Refinancing a mortgage for a lower interest rate is a common reason for doing so. According to Forbes¹, homeowners can save an average of $3,000 annually by refinancing their mortgage to a lower interest rate, saving them thousands of dollars throughout their loan. According to Bankrate, mortgage interest rates are constantly falling, dropping three points after reaching a seven-year high, making now the best time to refinance for a lower interest rate.
It’s not just about saving you cash and lowering your monthly mortgage payments, but it’s also about helping you establish equity in your home faster. As a result, you’ll have more peace of mind knowing that you can still make your monthly payments even if things get tough financially. Paying less money on interest allows you to save more money, which can then be used to pay down the principal or for some other purpose.
2. Reduce the Loan Term
It is possible to reduce the duration of your loan by refinancing your mortgage. Getting your mortgage term shortened has two significant advantages: you’ll pay your monthly mortgage payments for a shorter duration, and you’ll pay off your principal more quickly. As a result, you’ll pay less interest on the loan if you shorten the repayment period.
Perhaps you may be able to reduce the length of your mortgage term by refinancing dramatically. You may be able to shorten your mortgage’s term from 30 years to 20 years or even 15 years. Any of these solutions have the potential to save you vast amounts of money throughout the loan’s term. Any of these solutions have the potential to save you huge amounts of money throughout the loan’s term. According to Metro Credit Union², if the duration of a $200,000 mortgage is shortened from 30 years to 15 years and the interest rate is decreased from 4% to 3%, you would save around $100,000.
3. Switch to a Fixed-Rate Loan
Adjustable-rate mortgages (ARMs) often have reduced interest rates and monthly mortgage payments for a limited time, typically five years. The interest rate and the amount owed each month will rise dramatically once the grace period is up.
According to Mortgage101³, homeowners with adjustable-rate mortgages (ARMs) may see annual rate increases of up to 2%. It may be a brilliant idea to switch to a fixed-rate mortgage through refinancing if this is the case. It is possible to obtain a new mortgage with an entirely different term, interest rate, and payment schedule through refinancing. To get an even better rate, you could even switch your adjustable-rate mortgage to a fixed-rate one. In the long run, switching to a fixed-rate mortgage might save you thousands of dollars in interest and payments.
Compare Refinancing Offers to Find the Best Deal for You
Many people are familiar with shopping around for items like cell phones and televisions. Nevertheless, property owners hesitate to shop around for a loan, even if it might save them a significant amount of money.
Because of the competition among lenders, consumers can choose from various conditions and rates. To make an informed decision over whether or not to refinance, customers should search around for the best possible deal. For example, you should look for a repayment strategy that lowers your monthly payments, shortens the length of your loan, or increases your equity. First and foremost, you should reap the benefits of refinancing your mortgage.
As with anything else, it’s always a good idea to stay on top of the most recent research. Comparing at the very least three or four solutions is what we suggest you do before coming to a decision. The fastest and most thorough approach to learning about all the good and bad points of a particular option is to conduct an online search.
¹Forbes, 4 Smart Reasons To Refinance A Mortgage
²Metro Credit Union, Should You Refinance Into a Shorter Term Mortgage?
³Mortgage 101, ARM Refi – Trade Your ARM for a Fixed Rate