There are a lot of different economic factors which can influence someone’s decision to refinance their home; it is a big decision that can have a big impact on your finances. How do people know when it is time to refinance? Read on for the most common reasons behind refinancing.
A Lower Interest Rate
Refinancing your mortgage is the act of taking out a new mortgage to pay off the balance of your old one. There tends to be money left over for you to use as you’d like to. The interest rate on the new loan is often less than the old loan; you will save money in the long run.
A Shorter Term
A mortgage term is amortized over a term of thirty years; this extended time period is what allows the monthly cost of the home loan to be affordable. Understand your mortgage will be amassing interest throughout this time period also. Some people opt to refinance in order to shorten their term. This results in higher monthly payments, but it means that the mortgage is paid off sooner.
A Rate Change
There are two main types of mortgages: adjustable-rate mortgages and fixed-rate mortgages. During the refinance process, you can switch your mortgage from one to the other. As the name suggests, an adjustable-rate loan is a loan where interest rates change over the lifetime of the loan. It starts lower, and this rate is fixed for a set number of years; after that, it resets periodically.
A fixed-rate mortgage is a loan with a single, set interest rate over the life of the loan. Depending on the interest rates, it might make financial sense to refinance and switch from one to the other.
To Consolidate Debts
Many Americans struggle with credit card debt. Debts like these can be difficult to pay, due to generated interest. Opt to refinance your mortgage as a means of managing this debt.
Interest rates on home loans are often lower than the interest rates on other forms of debt. Use lower interest rates and consolidate your debts into one monthly repayment. Research what home loans are available to you, and which you qualify for.
Make a list of what you should do to qualify. Consult with industry leaders to determine what loan to apply for. Opt for the loan that suits you, including a jumbo mortgage refinance, and rest assured you will have the lump sum needed to get your finances in order.
People refinance for different reasons, as listed above, and it can make good financial sense. However, some people are also forced into refinancing to deal with a financial emergency. Either way, it is a great way to free up some equity. If you are looking at refinancing, it is important that you explore your options and do the research before committing to anything.