Why Should I Refinance My Home?
Trying to find ways to save on housing costs? Refinancing your mortgage might be an effective solution. Of course, one of the most obvious reasons for refinancing is to get a lower interest rate. According to the Bureau of Economic Analysis, in 2012, the average rate on refinancing a mortgage was 5.098%. However, today, the average national percentage advertised is about 3.5% making it an attractive choice for many homeowners. But before you jump off the deep end you should assess all the advantages involved in refinancing your home.
Shorten Your Loan Term
For homeowners dealing with a 30 year mortgage, this might be a great reason to refinance your home. With interest rates being at an all time low, you may be able to find a shorter term mortgage that is about the same costs as your current loan. This would allow you to own your home in a shorter amount of time for about the same amount of money.
Get Lowered Interest Rates
Now of course this will depend upon some qualifying factors, but in general, interest rates are a lot lower than they used to be. You can save yourself thousands of dollars simply by getting the interest rates cut in half. Someone who was once paying 7% on a mortgage can refinance and get approved for 4% and save a great deal of money. This essentially means that more of your mortgage payment is going towards the principal as opposed to the interest.
Lower Your Monthly Payments
When you refinance your mortgage and receive a lower interest rate this means the potential of reducing your monthly payments. Again, this too could save you a great deal of money so that you can invest in your home, save the cash, or use it at your discretion. However, it is important to point out that a lowered payment can increase the term of your loan. If saving money is what you’re after however, a longer loan term does not matter as much.
Cash Out Your Home Equity
If you’re looking for a lump sum of cash, refinancing your home loan makes a great deal of sense. For example, it is a great idea to cash out your home equity if you’re looking to start a business, get out of major debt, or even to purchase an investment property.
Before You Apply
While all of these ideas might seem tempting, before you actually decide to refinance it is important to assess your goals. What is it that you’re looking to do? Do you wish to lower your monthly payments, do you want to pay off your home faster, are you looking to get out of debt? The answers to these questions will help you to determine if you should refinance your home at all. Also, if you’re going to refinance your loan it is important to take a look at all the initial fees and costs you may incur. Depending upon the type of loan you choose, you could be looking at shelling out a few thousand bucks in fees.
If you can, talk with a financial advisor to go over your finances. You want to be sure that refinancing is the best option for you and seeing your financial circumstances on paper can help you make a more informed decision.
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