When homeowners consider a refinance, they usually do it for one main reason – to lower a mortgage payment. A mortgage refinance is the act of securing a new loan on your existing mortgage balance, often at a lower rate and different terms. A refinance makes the most sense if you are in a good financial position, have good credit, and can meet the criteria of the lender.
The new loan and terms typically provide some relief from the cost of a mortgage payment. With lower interest rates and a lower balance to finance, you can save quite a bit of cash each month on your new mortgage note. With low rates still available, more people are taking the steps towards a refinance. But did you know there are other benefits from refinancing your mortgage?
Switching to a Fixed-Rate Loan
With the instability of the national economy, getting out of an adjustable rate mortgage may be a smart move. Adjustable rates have the potential to increase and homeowners who may not be able to afford that higher rate can find some comfort in a fixed-rate mortgage where the payments and interest stay the same through the life of the loan. While you may get a slightly higher fixed rate, you will have the peace of mind even if interest does increase.
Consolidating Debts
In years past, before the mortgage boom went bust, people were taking out cash from their refinance deal. Back in the day, people used the money for luxury items they couldn’t otherwise afford. Now, in tougher times, people are taking the cash for more financial-savvy reasons such as consolidating and eliminating their large debts. By getting rid of many bills at once, you have more of an opportunity to save on a monthly basis to prevent debt problems in the future.
Investment Cash
Even if you don’t have a mortgage payment to make anymore, you might be interesting in taking out a mortgage to get cash you need for other purposes. People have been using the money to fund a new business operation or to buy investment properties. It’s not a refinance situation but it can make sense if the right opportunity presents itself.
Divorce Scenarios
Couples that are divorcing will use a mortgage refinance as a way of removing the ex-spouse’s name from the mortgage loan. Depending on your financial situation, you may also be able to secure a better rate on the new loan payment moving forward after the divorce. If you are the spouse planning to keep the home, it can be beneficial financially.
If you are considering a refinance on your present mortgage, make sure you shop around first for the current rates. There is a lot of competition in the mortgage industry and you will be able to find a deal to meet your needs. Only apply for a refinance if your credit is good and you can afford the new terms and conditions of the mortgage to help ensure your refinance is approved by the lender.
