04 Feb Refinancing: What Are the Benefits?
We help a lot of clients, as a Tennessee mortgage team, with refinancing their mortgage loans. There are many reasons that a homeowner will choose to refinance, and it can be beneficial in the right situations. Let’s go over the benefits of refinancing and how it can help you.
Getting a Better Mortgage Rate
This is one of the most common reasons that homeowners choose to refinance. If interest rates have dropped since you took out your mortgage, you would want to get that lower rate by refinancing your mortgage into a new one with the current lower rate. In some cases, a borrower’s credit score has greatly improved since they took out their mortgage. If so, the borrower may find they are eligible for a lower rate now. There is a potential for large financial savings when this happens.
Lower Monthly Payments
Refinancing with a lower interest rate could mean a drop in your monthly payment amount, especially if the refinanced mortgage has the same date of pay-off as your first mortgage loan. Another option, which can help lower your monthly payments, is to refinance to a loan with an extended pay-off date, such as going from a 15- to a 30-year mortgage.
Costs Are More Predictable
Some homebuyers choose to change from an adjustable-rate mortgage to a fixed rate. So, instead of payments fluctuating each month as they do with an adjustable-rate mortgage, they will stay the same – or be “fixed.” A fixed-rate mortgage makes it easier to budget your monthly expenses and, should rates rise, your payments will still remain at the lower fixed-rate.
Shortening Your Loan Term
The majority of borrowers start off with a 30-year mortgage. Many will choose to refinance and get a shorter-term loan with a fixed rate a few years down the line. This helps them to not only pay their mortgage off quicker but also saves them a lot of money since they aren’t going to be paying as much interest. While this does mean monthly payments will increase, you can usually find a good balance between term times and interest rates that won’t raise those monthly payments too significantly.
Some homeowners will choose the option of a cash-out refinance, which allows them to borrow funds from the equity in their home. In this type of refinance loan, the borrower receives a cash payment at closing and that same amount is added to the current mortgage. You could use that cash to renovate or make upgrades on your home, potentially increasing your home’s value even more.
Consolidating one’s debts is another benefit of a cash-out refinance. It allows homeowners to pay off any higher-interest debts – such as credit cards, or auto, student or other unsecured loans. This not only eliminates those higher-interest payments, but it also cuts down the homeowner’s monthly expenses.
Whatever your reason for wanting to refinance, speak to one of our loan advisors on our Tennessee mortgage team to see what options are available to you, and how much you could end up saving.