If you've been exploring your options for different types of mortgages, you've likely stumbled across a few references to mortgage refinance, which is essentially changing the terms of your current loan into a brand new loan. Choosing whether to refinance your current loan is a massive decision, one that deserves a great deal of consideration. Wyndham Capital Mortgage is here to offer three kernels of wisdom on when to remodel the look of your home loan.
3 Reasons to Refinance Your Mortgage
1. You Want to Take Advantage of Lower Interest Rates
When you first bought your home, the market climate may have been favorable, but the interest rate for your loan may not have been to your liking. One of the leading reasons for refinancing a loan is to take advantage of a lower interest rate than what you had when you first signed the papers for your current mortgage. Even saving as little as one to two percent on your loan over the long haul makes it worth it.
In addition to saving money on your mortgage by refinancing, you also give yourself the chance to build equity in your home. Think of what else you could be spending (or saving) that extra money on.
2. Cash Out on Your Home Equity
As time passes, and if you take great care of your home, its value starts to build into what’s known as equity. Refinancing allows you to take advantage of that increased value and turn it into a reliable source of cash you can use however you see fit. You can pay off credit cards, renovate your home, buy an investment property or start a business with your funds.
But proceed with utmost caution if you’re thinking of refinancing, as there’s a chance it can eat away at your home’s equity, and that’s especially true with cash-out refinancing. For standard refinancing, this loss may not matter very much if the money you save on interest equals or surpasses the amount you lose in equity, it all depends. To make the best choice, sit down with a mortgage professional to get an expert opinion on the long- and short-term advantages and disadvantages.
3. Switch From a Fixed-Rate Mortgage to an Adjustable-Rate Mortgage, or Vice Versa
There’s no reason for you to feel trapped with an adjustable- or fixed-rate mortgage over the life of your loan. A mortgage refinance allows you to lock in a low interest rate with a fixed-rate mortgage, or there’s a chance interest rates will continue to fall in the foreseeable future, making an adjustable-rate mortgage a sound idea.
The great thing about a home loan with a fixed rate is you’ll have an easier time creating a long-term budget. The not-so-great thing about a home loan with an adjustable rate is interest rates can rise just as easily as they fall, meaning you’ll be taking a gamble. In addition to talking with a loan professional to get a better idea of where interest rates are likely headed, you should go through your finances with laser precision to decide if you’ll be able to handle fluctuating mortgage and interest costs. Additionally, get a lay of the land for your career. Are you due for a promotion or raise soon? Is there a chance you might lose your job in the future? Do you have enough
saved up to handle a mortgage payment that suddenly skyrockets? Be honest with yourself about where your job is going, and make sure you and your bank account are prepared for every contingency.
And there you have your three reasons for considering a refinance to your mortgage. Whatever your reason, always be sure to consider short-term pain and long-term gain. To learn more about the next steps to take towards refinancing, click below.