Reasons to Refinance Your Home Loan

When the borrower of a mortgage has come to a point where the terms of the original loan are unacceptable or more expensive than they need be given the current economic condition, the borrower can choose to refinance the loan.  In this situation, the original loan is paid off and the loan is replaced with a new loan. In many ways, a refinanced loan is like a brand new loan obtained from scratch since the loan equity, appraised value and capacity to repay must be approved by the new lender.

Why should you refinance your home? It is a known fact that interest rates are lower than they have been in years. This is due to our fast paced and ever changing economy and market. Now would be the perfect opportunity to refinance your home to obtain a lower interest rate. Even a .25 difference can save you thousands of dollars a year in mortgage payments.

There are several reasons home owners decide to refinance. The most common reasons include:

Lower interest rate

Home owner generally are aware of interest rate downfalls. They take advantage of this opportunity by applying to refinance their current loan to lower their existing interest rates and save money on mortgage expenses. The money that a borrower saves on mortgage expenses can be invested in other financial investments.

Refinance cash out

Some home owners who have enough equity accumulated in their homes refinance to cash out their equity and get a lower interest rate

Make home improvements

Sooner than later you will find that maintaining your home is hard work (not to mention quite expensive). In most cases, home owners will pursue a refinance, rather than a personal loan, in order to save on interest rates. A personal loan may have higher interest rates and are normally not as large as a home improvement loan.

Change loan programs

A majority of home owner refinance because they are not satisfied with their current loan program. They may be under a 5 year arm, but somewhere down the line they decided they would prefer a 30 year fixed loan. Whatever the reason may be, a refinanced home loan will solve the problem.

Smaller payments

When you decided to refinance your current home loan, you may be able to structure the new loan in such a way as to lower payment amounts. This can be very beneficial if your goal is to tighten your financial belt due to a reduction in income.  Sometimes those who are entering retirement years will desire to stay in the same home, but will be living on reduced income, therefore, preferring to reduce expenses to match their change in lifestyle. Smaller payments on a refinance may be due to a better interest rate that can be enjoyed. If interest rates have dropped enough to offset the refinance loan fees added to a new loan, refinancing will be a smart thing to do. 

Longer repayment time

One of the benefits that can be achieved when you refinance your current home loan is being able to repay the debt over a longer period. This is desirable if you want to obtain a larger loan in order to pull out some cash at the time of closing.  It may be for the purpose of lowering your monthly payment as spreading out the same size loan over more years means that the interest paid will be greater, but the monthly payments made will be more manageable in size for the home owner.

Fixed payment

Another benefit that many borrowers find when refinancing their current home loan with a fixed rate option is that the repayment amount remains the same from month to month. If the proceeds from the home loan have been used to get cash out, it is likely to be cheaper than obtaining personal loans, or maxing out the balances on credit cards. Once the loan is set, the payment amount remains the same from month to month throughout the course of the loan.

Pay off debts

When you receive a cash out amount as part of the home loan refinance, there are many uses for the lump sum cash.  You can pay off hefty debts, particularly those with large interest rates.  This will free up available cash for your day-to-day living expenses. A refinanced loan can allow you to cover future expenses as well such as college tuition costs for yourself or family members. You can also use the funds to renovate or do major repairs on your home.  You may even use the funds to take a well deserved vacation!