Refinancing Your Home Mortgage: What’s In It For You
When you refinance your mortgage, you basically pay off your existing loan and obtain a new one in its place. Various reasons to refinance include getting a lower interest rate, shortening the mortgage term, converting to a fixed-rate mortgage or adjustable-rate mortgage or vice versa, tapping your home equity to finance a significant purchase, and consolidating debt.
Altius Mortgage Group notes that it’s important that your reasons for refinancing are met before you agree on the new mortgage refinance rate in Utah. Here are some tips to keep in mind:
Obtaining a Lower Interest Rate
The rule of thumb in the past is that it is worth refinancing if your interest rate can be reduced by 2% or more. Today, however, experts agree that savings of 1% would be enough of an incentive to refinance. What is important is that you save money while increasing the rate at which you accumulate your home equity.
Reducing the Term of the Loan
A good time to refinance is when interest rates are down. This way, you can find a loan that offers a shorter term, but at the same monthly amortization you are currently paying.
Shifting Between Fixed-Rate and Adjustable-Rate Mortgages
While ARMs usually begin offering lower interest rates than their fixed-rate counterparts, periodic adjustments usually result in higher rates. Converting to a fixed-rate loan would result to a more preferable interest rate and address concerns over interest rate hikes in the future. The reverse is true if interest rates remain low over the long term.
Tapping Equity and Debt Consolidation
If you need to cover a major expense, such as remodeling your home to increase its value or to finance a child’s education, bear in mind that you are prolonging your loan term. The same can also be said for consolidating your debt.
Refinancing is a sound move if it can reduce your monthly payment, cut the loan term, or help you build home equity faster. If prudently used, it can also be a good way to consolidate your debt. The bottom line is the new mortgage must make your life more convenient overall, and not put you in a worse financial situation.