Mortgage refinancing is a practice of switching from an old loan to a new and potentially better loan. It's not necessary to continue with the same mortgage plan throughout your life. You can think about mortgage refinance if you have a strong reason to do so, which can be lower interest rates, consolidating debt, or tapping into home equity. In the United States, approximately two thirds of the mortgage applications are from consumers who own a home and want to flip their mortgage plans.
Sometimes refinancing your mortgage can be the perfect decision and in some cases it might just not make any sense. The home that you own is actually one of your largest assets and you must be confirmed about the information before refinancing your home. The terms and conditions of refinancing vary from a particular case to another. If you're thinking about refinancing your debt under financial obligations, it might just be the correct decision and can help you in restructuring your debt. However, when you think about mortgage refinance and inform it to your lender, he/ she might just offer you a better deal so that he/ she don't lose business with you. It's a complete negotiable situation. Deciding to refinance your mortgage can't be random thought. You must be having reasons to do so. If you think any of the reasons mentioned below are probably good for you, then it's time you think about refinancing:
1. Build home equity faster
Your financial situation can change over a period of time. If it becomes better, the first thing you would want to do is pay off your mortgage loans as soon as possible. You might want to refinance your mortgage plan with higher payments and shorter duration. By paying a higher amount, you can get rid of your loan more quickly and you can also save a lot of money that you would otherwise be paying in form of interest.
2. Switch to a fixed or adjustable rate mortgages
Depending on your mortgage plan and your requirements, you can opt for adjustable rate mortgages (ARMs). If you have fixed mortgage plan and want to reduce your monthly interest rates, is easy with the interest changes of an ARM, which can actually save you money to refinance. However, some people find the procedure too stressful and opt for fixed rate and consistent monthly payment.
3. Attain a lower fixed rate
You might have taken out a fixed mortgage plan 5 years back at an interest rate of 10 percent, but the rates have fallen since then. If you apply for mortgage now it might be available in 6 percent. Hence, you know it's time to refinance. However, you might get penalized depending upon your mortgage plan. If you have a fixed rate mortgage, then you might have to pay penalty of more than three months interest or interest rate differential penalty. If you have a variable rate mortgage, then you might have to pay three months interest. Though, even after paying penalties, in the long run terminating your contract can actually save you a lot of money.
4. Improve the features of your ARM(adjustable rate mortgage)
Generally, adjustable rate mortgages have limitations on the amount that you can pay in a particular year and over the full term of the loan. Sometimes, you might not be comfortable and not satisfied with the limit in your ARM. You might need to negotiate to refinance, asking for better features that satisfies your needs.
5. Turn home equity into cash
Sometimes paying on a mortgage might get difficult because of your financial condition partly, and partly because of high interest rates. You might want to refinance with a larger principal, so that you can convert your home equity into cash for some important expense.
6. Reduce monthly payments
In case you are facing financial problems, you might need to reconsider about the mortgage plan. You might want to pay a lower amount each month, so that you're able to maintain your budget. It can lead to higher payments in the long run because you actually end up paying more interest. However, lowering your monthly payments might only be the option for you to get our finances in control.
However, when you refinance, lenders charge some fees on a new mortgage and you are also penalized to get out of your old one. You don't get to understand the profits right away. Most lenders check that you at least have a minimum of 20 percent equity to qualify for refinancing. You must choose a reputable mortgage lender and discuss about the terms, rates, costs, monthly payments, etc, before making an agreement.
Check out 5 mortgage refinancing tips for your benefit...