Long-term financial benefits —the biggest factor everyone thinks about when deciding to refinance their mortgage.
Home Refinancing is definitely a smart financial move when done in the right way and certainly one of the best biggest financial decisions one will ever have. Aside from its long-term financial rewards, there are also short-term benefits you can get in home refinancing.
While it’s a big decision to consider home refinance, it’s also important to take a look at both short and long term benefits in doing so.
First, let’s take a look at the short-term advantages:
One of the main short-term benefits of home refinancing is it helps you consolidate debts with higher interest rates such as credit cards, etc. than your mortgage payment. Thus, it consequently reduces the amount of interest you pay that will allow you to pay those debts off sooner for less.
Turning some of your home’s equity into cash also known as cash-out refinance helps you consolidate and pays off some of your debts.
Having access to your equity assists you as additional funds not only to pay some of your debts but also to accommodate to pay for expenses like home renovations or future investments.
Also, if you still have a lot of equity in your home, you can reinvest that equity in your home to make some long-needed repairs or just to renovate the property.
Using it for the home renovation is one of the best ways to increase your home’s value in the future.
You know you’ve made the right choice of refinancing your home when you get to enjoy and have peace of mind in converting your adjustable-rate mortgage (ARM) to a fixed rate loan. The predictability of your loan payments helps you manage your finances and you won’t have to worry about the potential of paying more moving forward.
It’s also important to remember that fixed-rate mortgage typically charges a set rate of interest that does not change throughout the agreed loan term.
The regular ARM adjustments that generally increase the interest rate on your mortgage makes converting to a fixed-rate loan a smart financial move.
The lender normally requires you to pay Private Mortgage Insurance (PMI)when you make a down payment of less than 20% on a home, which is a premium you pay every month.
Another great short-term benefit of home refinancing is it eliminates the PMI and, as a result, lower your monthly mortgage payment.
PMI is not required only if the balance of your new mortgage will be 80% less than the home’s value and you satisfy in other criteria which will determine through a process of appraisal.
These are all just short term rewards, no wonder homeowners are considering home refinancing most importantly for it’s long term benefits:
Undoubtedly, the ultimate reason to go for a home refinance is —to save.
Although the common reason for refinancing is to save on interest costs, if your new mortgage rate is lower than the rate of your other debts, you will benefit from a lower mortgage payment, too.
Particularly, with long-term loans and large dollar amounts, lowering the interest rate can result in significant savings in the future. Obtaining a loan with a lower rate translates to lower payments and, in the end, that means you’ll pay less for your home overall.
One of the key benefits of home refinancing is to get a shorter-term loan. You can own your home much sooner from let’s say 30 years to 15 years, which typically come with a lower interest rate. Although the monthly payment will go up, if you can cover the difference, it will still be a good financial move on your part. The good thing is if you take this route you’ll also be able to build equity in your home faster.
Home Refinancing, in a general sense, leads to lower required monthly mortgage payments. As a result, there’s more money available in the budget for other monthly expenses and proper cash flow management.
But before that, it’s best to check the most current mortgage rates to make sure they’re sure than your current rate. Make sure to examine even the smallest details and differences of even a single percentage that will make an impact on your future financial situation.
Refinancing your mortgage restart your clock and extend the amount of time it takes for loans to repay. The new monthly payment will decrease since your new balance is most likely smaller than the original loan balance, so you have more time to repay the loan.
Paying less monthly payments for your mortgage will undoubtedly free up some extra money in your budget.
If you are in Adjusted Rate Mortgage (ARM), switching to a loan at a fixed-rate adds stability since ARMs are prone to fluctuations that make these loans extremely unpredictable. Also, a fixed interest rate offers protection if rates are currently low, but expected to rise in the future. Refinancing to a fixed-rate mortgage will be the best option for you if your payment is adjusting upward due to periodic rate change.
No matter what loan type you choose, examining both loan types carefully will help you avoid costly mistakes in the future.
If for some reason you have suffered from a low to bad credit score, you most likely have a loan or two with a high-interest rate. The good thing is, the more you make on-time payments, you’re sure to love the way it improves your credit score. With a better credit score, it is easier to refinance your mortgage down to a lower interest rate and you can also refinance other loans (car, personal, etc) at a significantly lower rate.
If you choose to do cash-out refinance, it can definitely help your credit score even more by paying off your credit cards in full with the cash you will get from it. Reducing your credit utilization ratio or the amount of available credit you’re using will definitely build your credit score.
In summary, financial benefits of mortgage refinancing extend from better interest rates, lower monthly payment, paying off the loan sooner to cashing out on some of your home’s equity.
No matter what your reasons are in considering getting home refinancing, it is important to have a clear understanding of your financial situation and objectives. Remember and keep in mind the benefits we discussed in order to get the loan that better suits you.
Overall, home refinancing allows you to shift your debts to a better place and assist you in the future in your finances that certainly will be worth it in the end.