5 Signs Refinancing Your Mortgage Is a Great Idea

Refinancing provides homeowners with the opportunity to replace an old loan with a better option. A refinanced mortgage can be costly in a less-than-ideal situation, as closing costs are typically 3% to 6% of your home’s price.

Under the right circumstances, however, refinancing your mortgage will save you money with reduced interest rates, help you switch to a fixed-rate or adjustable-rate mortgage, or shorten the duration of your mortgage in general. Here are five definite signs that refinancing your mortgage is a great idea.

1. You Have The Opportunity To Get A Lower Interest Rate

A drop of as little as 1% to 2% in interest will save you thousands of dollars of interest fees by the time you have paid off your entire mortgage loan.

Just because you began with an expensive mortgage doesn’t mean you have to stick with it until you’ve paid off your entire loan. If you obtained your mortgage loan when interest rates were high, you have nothing to lose and everything to gain by refinancing.

If you’ve been struggling with high monthly mortgage payments or wish to maximize your savings, refinancing can be the difference between financial struggle and comfortable, affordable payments.

2. You Have A Higher Credit Score

Even if interest rates haven’t dropped, you still may be able to lock in a lower interest rate with a higher credit score.

If you had a lower credit score when you first got a loan for your house, you likely have had to pay more interest than you would have had to with a lower debt-to-income ratio.

If you have boosted your credit score over the years by paying down debt and making timely mortgage payments, it’s not too late to qualify for a lower interest rate. Lenders are far more comfortable giving applicants with high credit scores loans. For this reason, a low DTI ratio will provide you with additional loan options that you may not have had access to when you initially purchased your house.

3. You Need To Pay Off Urgent Expenses

A house is not just a place to live. As a homeowner, your house is also an investment. As you pay off your mortgage, your home equity continues to increase. If you need cash for high-priority debt payments or financially demanding projects such as home renovations, liquidating your home equity through refinancing is a viable solution in some cases.

It is important to note that cash-out refinancing is only worth it if you have the means to pay off your new loan on time. Since this refinancing option increases your overall mortgage, this option is best for homeowners who plan to live in their homes for several years or more to have time to pay off the mortgage.

4. You Would Prefer A Different Type Of Mortgage

If you want to switch from a fixed-rate mortgage to an adjustable-rate, or from the latter to the former, refinancing is an excellent solution.

Depending on your unique mortgage needs, switching to an adjustable-rate or fixed-rate loan will improve your financial situation.

For instance, if interest rates have dipped much lower than average when you decide to refinance, a fixed-rate mortgage will enable you to lock in at a reasonable rate.

Alternatively, if your current loan is a fixed-rate mortgage with a high-interest rate, changing to an adjustable-rate loan will allow interest rates to start lower than the average fixed-rate loan. Over time, an adjustable-rate mortgage will follow the ebb and flow of the market.

5. You Need A Longer Or Shorter Mortgage Term

Depending on your financial situation and how much of your mortgage payment is left, it can be prudent to change to a shorter or longer-term mortgage.

If you currently have a 30-year mortgage loan and wish to save on interest rates, switching to a 15-year loan is a better idea, as this shorter-term option comes with lower interest rates.

However, if you have a 15-year mortgage and find the higher monthly payments too expensive, changing to a 30-year rate will provide you with lower, more affordable monthly payments.

Refinancing your mortgage is a smart solution for reducing interest rates or switching to a more convenient or affordable mortgage plan.

Since 1999, Supreme Lending has been helping both new and experienced home buyers get the best rates in the market.

Check out our refinancing calculator to help determine whether this is a good choice for you. When you are ready to apply for a new loan, get started here to find a suitable mortgage.

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