When Should I Refinance My Mortgage

When Should I Refinance My Mortgage?

Refinancing a mortgage can be a good way to save money. People often refinance to get lower interest rates. They can also shorten the term of the loan making for less payments that will result in less interest. Homeowners may also choose to refinance to tap into equity to consolidate debt or to switch from a fixed rate mortgage to an adjustable one.

While many of these options have advantages for homeowners, it is not always advisable to refinance. It is a decision that should be considered carefully in advance.

This article will provide some information on refinancing so you can decide when to make a move.

Lower Interest Rates

If you have a high interest mortgage, refinancing is a good way to get a lower rate. Experts say that even being able to save 1% is a good reason to refinance. In addition to saving on interest, it also increases the rate at which you build equity in your home.

Shorten the Loan’s Term

If you are able to find a lower rate mortgage, or if interest rates fall, you may consider refinancing your existing loan for another loan with a shorter term. In these situations, you can make close to the same monthly payments you were making on your original mortgage, but you can pay it off quicker to reduce interest overall.

Switching to an Adjustable or Fixed Rate Mortgage

ARM’s typically start at lower rates than fixed rate, but as rates increase over time, you may want to switch to a fixed rate mortgage. On the other hand, some homeowners will switch from a fixed rate to an adjustable mortgage for the lower payments.

In general, adjustable rate mortgages are advantageous to homeowners who don’t plan to stay in their home for long. They can take advantage of the lower payments without having to worry about interest rates that may rise in the future.

Tapping Equity and Consolidating Debt

Refinancing is also a way for homeowners to get out of debt. They can access the equity in their homes to cover major expenses. This can be a good financial move if the interest they are paying on their mortgage is lower than the interest charged for paying off the other expenses. It’s also smart because unlike other expenses, mortgage payments are tax deductible.

However, refinancing to get out of debt is not always a good move. It’s a good idea if the refinancing helps to get you out of debt on a permanent basis. However, if you are unable to stay out of debt, you will have spent a lot of time and money on the refinancing process only to find yourself back in the hole.

Refinancing is a good option for those who find a more attractive loan and it can also be a short term debt solution. However, it is important to think carefully before determining if this move is right for you.