The Benefits of Refinancing

A lot of homeowners may hear about low interest rates and start to wonder if they could be saving money by taking advantage of them. It can actually be a great savings to a homeowner if they are able to refinance in the right situation. In order to make the most of the benefits that refinancing could offer, it is imperative that the homeowner is aware of the ins and outs of refinancing.

Save Money

Ultimately, if you refinance your house mortgage, you could get a lower rate and save money to invest in home additions, like installing a pool. This could lower your monthly mortgage payment, saving you money each month, as well as reduce the amount you will pay to interest over the life of the loan. So, refinancing could save you money immediately and long term.

But, in order to save you enough money to make it worth-while the interest rate needs to be a decent amount lower. Just like when you buy a house there are fees associated with refinancing. So, the amount of money you will save by refinancing needs to exceed the amount you will pay in refinancing fees in order to save money. So, if the fees are $2400 and you are going to save $100 a month on your mortgage with the lower interest rate then it will take 2 years for the savings to be worth it.

Generally, interest rates that are more than 2% lower than your current rate are low enough to be worth your time to consider refinancing. Those will excellent credit may be able to shop around for better interest rates of multiple lenders. If your credit score has gone up since you established your mortgage than it may be cost effective to check what interest rates you may now qualify for.

Not only does refinancing save you money, but it also build the equity in your home much quicker. When less of your money is going toward interest, then more of it is being applied to the principle. If you are able financially handle a mortgage with a shorter life like 15 or 20 years, then you may want to consider refinancing to a shorter life loan in order to save money on interest rates long term.

Fixed Rate Options

Another advantage of refinancing is to get a more stable loan. If you purchased your home with a mortgage that had a variable interest rate, then it would be wise to consider refinancing to a fixed rate mortgage. A variable interest rate changes and can fluctuate up or down. This means that if interest rates sky rocket, then yours will do and your monthly mortgage could increase greatly. By refinancing with a fixed rate, your mortgage payment will be the same for the entire life of the loan.

If you have a lot of other unsecured debt with high interest rates then refinancing could benefit you. You may want to consider refinancing your mortgage and cast out some of the equity in order to pay off those high interest unsecured debts. The mortgage rate you will get refinancing is more than likely going to be lower than those other debts so you will save money long term.

But, in order to fully take advantage of the benefits of refinancing, you need to plan carefully. If you take a cash out when refinancing your mortgage, make sure you put that money to good use and do not spend it frivolously. The idea behind refinancing is to more you forward financially, not set you back.

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