Refinancing Your Mortgage
Mortgage refinancing is a term that is thrown around quite a lot but many don’t know what it means. When you decide to replace your old mortgage with a new one, you are considered to be refinancing. Majority of the times, refinancing is done because you might be looking to change the type of interest that is applied or the amount. Regardless, refinancing can be risky especially if you have a bad credit score.
It is imperative that you know all the information about the processes of refinancing before you actually embark upon the task yourself. Otherwise, you might actually end up with higher rates of interests. Thus, understand why refinancing may be needed, when it is needed and how it will benefit you if done correctly.
Why should you refinance your mortgage?
Common reasons as to why mortgage refinancing may be needed is because of the following reasons:
- Lower Monthly Payments
More often than not, people revert to refinancing their mortgages in order to reduce the amount of money that needs to be paid at the end of every month. This is the best option if you are planning on living in your home for a longer period of time. If you are to move out shortly, then getting your mortgage refinanced is not a wise option since it will take you longer to cover its cost. A new mortgage will have a new fees, new terms and a new schedule for payment.
- Private Mortgage Insurance (PMI)
Most people will often look towards refinancing their mortgage is they want to cancel their private mortgage insurance. When buying a house on down payment lower than 20 percent of the purchasing price, PMI is required so that the risks of default are prevented. As the balance is paid, the cost of PMI can be eliminated through a refinanced mortgage.
When to refinance your mortgage?
Sometimes, banks will require a borrower to maintain the same mortgage for a period of 12 month before they are able to look at refinancing options. As such, depending on who your lender is and the terms agreed to on the current mortgage, refinancing options will vary.
In majority of the cases, the same lender will be able to fulfill your refinancing needs without the need for a new property appraisal, title search and the like. They will give you a better rate depending on how their experience has been with you.
How will refinancing your mortgage help you?
- Your interest rate will reduce dramatically.
- Your credit score ill improve as you make each reduced payment on time.
- You will be able to secure future loans without trouble with a better credit score.
- You will be able to gather a large sum of savings over time.
- You will be able to spend money on other luxuries like a car, international travel trip and the like.
- You can invest back into your home with renovation projects and interior upgrades.
- You can benefit by investing in your home since it increases its value in the market.