There are many good reasons for refinancing your mortgage loan regardless of the direction interest rates are heading. Depending on your financial situation you might need to refinance the loan for a lower interest rate, lower payment amount, possibly even a higher payment amount to build equity faster. Here are several tips to help you decide if mortgage refinancing is right for you.
If you’ve been living in your home for five or ten years, chances are your financial situation is different from when you first applied for the loan. If you have better paying job, have married and have dual incomes, or have paid down you debts, your financial picture is different today than it was before. Chances are you will qualify for a better interest rate today, and refinancing the loan could save you money. The average homeowner in the United States refinances their mortgage every four years and the most common reason is to get a better deal. Qualifying for a better interest rate isn’t always possible, and as you will see is not the only reason for mortgage refinancing.
Mortgage Refinancing for a Lower Payment
Qualifying for a lower mortgage interest rate will lower your monthly payment amount; however, there are other ways to get a lower mortgage payment. Interest rates are just one factor that determines how much your payment will be. The other factor is your mortgage loan’s term length. Term length is the duration of your loan and by choosing a mortgage with a longer length you can significantly lower your payment amount. Common mortgage term lengths are 15 to 30 years; however, there are now 40 and 50 year mortgages. The downside of keeping a loan for this duration is that the total finance charges you pay go up significantly the longer you keep the loan. You will also build equity at a much slower rate by choosing a loan with a longer duration.
Mortgage Refinancing for a Fixed Interest Rate
If you purchased your home with an Adjustable Rate Mortgage because qualifying was easier and your payments lower, you might be concerned with what happens when the lender resets your mortgage loan. Many homeowners don’t fully understand how their Adjustable Rate Mortgages work and get into trouble after the first adjustment when their payment amount goes up. If your budget is already stretched to the limit you might want to refinance the loan to a fixed interest rate before your payment goes up. By refinancing now you could be avoiding a financial meltdown that results in the loss of your home.
Mortgage Refinancing to Build Equity
Many homeowners refinance their mortgages to build equity at a faster rate. By choosing a mortgage loan with a shorter term, say 10 to 15 years, you will pay off the loan at a much faster rate. The monthly payment amount will be much higher; however, you will pay significantly less to the lender in finance charges. You can learn more about options for mortgage refinancing while avoiding costly mistakes by registering for a free mortgage guidebook.
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