You signed on the dotted line and ‘bam!’ you have a mortgage.
Years go by and you start to consider a mortgage refinance, starting to see its advantages.
Well, to be honest, it’s not all unicorns and sunshine, since there are costs and risks when it comes to home refinancing, but it’s still a good solution to solve some of your money issues or get more money left in your accounts at the end of your mortgage.
Refinancing your mortgage means you are moving your home loan from one lender to another.
Mortgage refinance reasons to consider
Lower interest rate
When you signed up for your home loan you got an offer based on various factors (credit history, how the real estate market was back then, interest rates etc.).
As time passes you will find out that others, who sign up for a mortgage, can even get a better deal, just because the economy is different, there are more loan types etc.
It makes sense to consider a mortgage refinance, if you get a better deal.
Beware!
Most home owners look to lower their monthly payments, when looking to refinance their home loan, but this can actually be a trap, since in most cases it just means you are extending your loan time and not get a better deal in the end.
If you can lower the interest rate though, now that’s the catch!
You have a better credit score
If your credit score has gone up, during your mortgage years, you might qualify for a lower rate. Even a small percentage can wipe off few hundred bucks on a monthly basis.
Improve your credit score as much as possible and then see if you can refinance your mortgage and get a better deal.
You want to secure some money for a renovation
If you need a lot of money for a home renovation and can get a better deal from another lender, it makes sense to try and refinance your mortgage.
After paying all your penalties and fees, if you chose a more profitable lending solution, this should allow you to also get some money out of it and direct it towards your home project.
You can switch to another type of mortgage
Back then, when you signed for your home loan, there were few options available to you and I’m sure you chose the best one. What if you can now switch from an adjustable rate mortgage (ARM) to a fixed mortgage for instance.
Consequently, if you are in a better financial position to pay off your home loan faster, you might consider moving from a 30-year to a 15-year mortgage.
If you have an adjustable-rate mortgage, refinancing should definitely be considered, because rates will inevitably go up, so it does make sense to refinance.
Whatever you choose to do, you will need to make some solid calculations and assess your finance status properly. Failing to do this due diligence work will result in a worse mortgage deal and your entire mortgage refinance failing to bring you any advantages.
