3 Reasons to Consider Refinancing Your Mortgage
While refinancing has a range of benefits that can save homeowners thousands, many question whether they should go through with the process. After all, refinancing does come with a new set of closing costs and you basically do apply for a new mortgage, so it’s a decision that shouldn’t be taken lightly. To help you decide, here are the top three reasons why some people choose the refinancing route!
Lowering Mortgage Payments
If current mortgage rates are lower than what you’re currently paying on your home loan, refinancing is a great way to take advantage of lower rates. Interest rates directly impact how much you pay each month, so getting a lower rate will also lower monthly payments which creates more cash flow in your budget. You can use the extra cash to pay down debt, build a savings account or reach other financial goals. Historically, the rule of thumb is to refinance when you can reduce your interest rate by at least 2%; however, 1% savings may also be enough of an incentive to refinance.
Switching to a Fixed Rate Loan
An adjustable-rate mortgage is a type of mortgage in which the interest rate changes. These loans have an initial fixed-rate period of three, five or seven years. When the fixed-rate period ends, the rate changes every year to reflect market changes. This means the mortgage rate can increase or decrease, which causes monthly payments to also rise or fall. Adjustable-rate mortgages can be good short-term options, but when the adjustment period kicks in, your rate could quickly exceed the current fixed rates. Switching to a fixed rate loan by refinancing will make your monthly payments stable and predictable, making it easier to set a monthly budget.
Tapping Equity or Consolidate Debt
Home equity is the difference between your home’s value and what you still owe on your mortgage. A cash-out refinance allows you to borrow cash from your equity. You will end up owing more on your house and you’ll have less equity, but this is a good option if you find yourself needing cash for debt consolidation, home improvements, college expenses or any other large expense.
If refinancing feels like a viable option for you, contact one of our Loan Officers at ALCOVA Mortgage today to learn more!
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