Top 5 Reasons To Refinance Your Mortgage

Don’t think about replacing your current home loan with a new one just because everyone else is. The ideal time to refinance for one borrower may not be the same for another. Before jumping into a decision, it’s important to take the time to understand how you stand to benefit from refinancing.

Here are five instances when refinancing may make sense for you:

A Drop in Interest Rates (The Most Obvious Reason)

Taking out a new loan when interest rates fall will help you save money on interest charges. However, what you save with a lower monthly payment, you end up paying in new closing costs. Depending on how long you expect to live in your home, this may or may not be a smart financial decision.

Replacing an Adjustable-Rate Mortgage (ARM)

This type of loan has a low introductory interest rate that “resets” after a set period. If interest rates shoot up at this time, it can raise the monthly payment by an alarming amount.

If you have an ARM – you may want to convert to a fixed-rate loan before the interest rate ‘resets’. Since it’s difficult to predict interest rates, staying a step ahead and refinancing is a good idea.

An Improved Credit Score

If your credit score was a lot lower when you took out your current home loan than it is now, you may want to consider refinancing. This is because, with an improved credit score, you may be eligible for a lower interest rate.

Lowering Your Monthly Payment (If You’re Having Trouble Keeping up With Your Payments)

People struggling to make their existing monthly payments might find it beneficial to refinance and take out a new loan with a longer term. By stretching out your mortgage (at the same rate), you’ll be paying more interest in the long run, but it will lower your monthly payments.

Tapping the Money in Your Home (A Cash-Out Refinance)

In the event of an unexpected crisis, your home can be a source of low-cost cash.

Refinancing with a bigger loan will leave you with extra cash that you can use to stay afloat. To do this, you’ll need to stay within the loan-to-value threshold (the LTV ratio is calculated by dividing the amount borrowed by the appraised value of the property) for your loan program.