Refinancing your mortgage may be great if you want a better interest rate, have extra cash or reduce your monthly payments. However, many people haven’t thought about refinancing or don’t know what it is. Before deciding to refinance, know all the facts first, so you know what you are getting into.
So, what is refinancing? When you refinance your mortgage, you pay off your current mortgage in exchange for a new mortgage and new terms. The application and procedure for refinancing are very similar as to when you first applied for a mortgage. When you do this, it is possible to get a new mortgage with different terms, interest rates, monthly payment amount, and payment time.
If you decide to go this route, there are a few things you may want to consider, like what would the benefit be? Some loan contracts have penalties if you finish your payments early, in full or in part.
By taking another look at your mortgage, you may discover that the current mortgage rate is lower now than what it was when you first applied for your loan. In this case, there may be a possibility that you can lower your monthly payment if you don’t shorten the payment term or the balance doesn’t have a drastic change. In the industry, the rule of thumb is that if the current interest rate is at least two points lower than your current rate, it is well worth your while to look at refinancing.
Many people choose to switch to a fixed rate mortgage versus staying with an adjustable rate. As the name suggests, an adjustable rate may cause your interest rate to fluctuate from time to time, and probably stay at a higher rate. Switching to a fixed-rate can help a person get a constant lower rate at that time. Some people choose to go for an adjustable rate because in the beginning the rates are low, but can increase or decrease at any given point in time. When deciding to refinance, you will want to examine these options.
There are reasons why someone would want to refinance a mortgage in the hope that it will help pay other debts or they will receive lower rates. Before you enter into any agreement, consult a mortgage broker to help in making the best decision possible. Do your research when you look at different rates and terms to ensure you are getting a good deal and understand all of the new terms. So, if your credit score has changed, the interest rates have changed, or you are wondering if you may be able to save money, you may want to look into refinancing your mortgage.