Best Reasons for Refinancing a Home Loan

Among the many good reasons to refinance, the following five stand out:

  1. Decreased Monthly Payments. Spreading out your mortgage payments over a longer term will mean you pay less each month, as will cutting your interest rate. If lowering your expenses is a priority, you should consider 40-year mortgages, interest-only payments, and adjustable-rate mortgages (ARMs). Of course, these options have their downsides, so make sure you understand the trade-offs before you avail of them.
  2. Reduced Interest Rate. You can lower both monthly payments and total interest payments by refinancing at a lower mortgage rate. If you expect to stay in your new house for the long term, take a look at 15- and 30-year fixed loans. If you think you may move again sooner than that, ARMs and hybrid ARMs offer the lowest initial rates, and don’t begin to adjust for 3-10 years.
  3. Shorter Mortgage Term. If you can afford the higher monthly payments, a 15-year mortgage has several advantages. Compared with 30-year loans, interest rates are around 0.5% lower, reducing your overall interest expense. As well, your home equity increases much more quickly.
  4. Conversion from Adjustable-Rate to Fixed-Rate Mortgage. If you have an ARM but are planning to stay in your current home for the foreseeable future, changing to a 15- or 30-year fixed-rate mortgage could be your best choice. This will protect you from inflation and make your budget more predictable.
  5. Conversion of Home Equity to Cash. You may need cash for home improvements, tuition or eldercare expenses, debt consolidation, or other investments. Whatever the reason, you can get it with a cash-out refinance or home equity loan. If you’re happy with your existing mortgage, take out a home equity loan; otherwise, consider cash-out refinancing.

You should remember that refinancing basically “restarts the clock” as far as your mortgage. Suppose you’re ten years into your existing loan and you refinance with a 30-year mortgage – you’ll be making payments for a total of 40 years. This may be entirely appropriate for your situation, but it’s definitely something you’ll want to think about.

If you’ve decided on refinancing, we can connect you with lenders who will offer you a variety of home loan options. Since these lenders are competing with each other for your refinancing business, you can be assured of receiving favorable terms and competitive rates.