People often think that the only reason to refinance a mortgage is to reduce monthly payments but there are many reasons why refinancing can be beneficial. While there can be many benefits to refinancing, homeowners should be cautious when deciding whether to refinance. Even if you are able reduce your monthly payments by refinancing your mortgage, it could end up costing you money in the long run if you’re not careful. At LoanSuperStore.com, we will provide you with all the information you need to make the right choice when refinancing.
Here are some of the most common reasons for refinancing:
- Obtain a more favorable interest rate to lower payments or reduce your loan term
- Reduce your monthly payments in exchange for an extended loan term
- Consolidate debt into a single loan
- Switch from a variable-rate loan to a fixed-rate loan
- Acquire cash through the equity in your home
Improved interest rates are the driving factor in most mortgage refinances. An old rule of thumb is that if you can reduce your interest rate by least 1%, refinancing is a smart choice. This is of course a rule of thumb and your unique circumstances will need to be reviewed. Let’s review some additional factors you will want to consider.
Homeowners planning to stay in their current home for many years will often find that refinancing can be very beneficial. Those who intend to relocate in the near future will need to take a closer look at their refinancing options. Just like when you purchased your home, closing costs need to be paid when refinancing. These closing costs can be quite significant and may have an impact on your decision to refinance. For example, if closing costs are $5,000 and you save $200 a month by refinancing, you will need to stay in your current home for a little over 2 years to fully recover those costs. If you are saving only $100 per month, you will need to stay in the same home for 4 years to recover the same costs.
You are also going to need to consider how long you have left on your current mortgage. If you have 20 years left on a 30-year mortgage, refinancing into another 30-year mortgage will extend the amount of time until you own your home. It is important for many homeowners to not have a mortgage payment after retiring.
Streamline refinance programs are available to individuals who currently have either an FHA or VA loan. Streamline refinances are quick, easy, and only available if the resulting refinance will provide a “net tangible benefit.” This means the refinance must save the borrower money. This helps to eliminate the uncertainty of refinancing for many homeowners.
Cash-out refinance loans allow homeowners with equity in their homes to take out cash for home repairs, renovations, and other needs. Home equity loans are similar but involve creating a second loan on top of an existing mortgage. Cash-out refinances are a true refinancing of an existing loan.
LoanSuperStore.com specializes in refinance loans throughout Calabasas, Woodland Hills, Westlake Village, and Sherman Oaks. Whether you are simply looking for a better rate to lower your monthly payment, or need cash to make renovations to your home, we are here to help. To see how we can help you save money through refinancing, contact us today or use our Refinance Advisor tool to get started.