Refinancing your home can be a great way to save money and generate equity. This process allows you to put your best foot forward and approach lenders with a more competitive interest rate. Refinancing is best for those looking for a better term, lower monthly payments, or increased cash flow, as well as those seeking additional funds such as credit card debt consolidation.
There are many financial benefits of refinancing your home loan, including saving on interest rates, paying off other debts quickly, getting cash out of the house, adding value to the property (by making improvements), increasing tax deductions (by renovating). But before taking this major step, it’s important to know what factors affect mortgage rates—including credit score, down payment, and the type of loan best suited for your needs.
Refinancing can save you time, money, and headaches by consolidating your bills into one fixed monthly payment to your current lender or a different one. Refinancing rates are typically lower than those on other mortgages because term lengths are longer. That means you’ll have a mortgage for 15 or 30 years instead of the shorter term, such as 3 to 5 years.
In addition to lowering your interest rate, refinancing your home loan will give you access to cash from the equity in your home. A refinance can even help you pay off other debts.
When you consolidate your credit card debt, you can reduce the interest rate and potentially lower your monthly payments. Homeowners might want to refinance for a shorter term and pay off their mortgage faster. This will give them access to more cash for other needs, such as paying off those credit cards. Look at the pros and cons of refinancing before taking this step. You’ll want to consider your current financial situation as well as the best type of loan best suited for your needs.
Need cash for renovations or housing repairs? You can refinance to take out a loan against the equity in your home. Need an extra income stream? Refinancing will let you sell your mortgage note, providing you with regular payments until the loan balance is paid off.
- Get cash out of the house. If you lose your job, refinancing will let you “sell” your mortgage to another investor at a lower interest rate than the one set on the existing loan.
- Increase tax benefits. You can increase deductions for mortgage interest and property taxes by making home improvements or fixing up the house.
- Consolidate debt into one fixed monthly payment.
- Get a better rate to reduce monthly payments.
- Save money by paying the mortgage off faster.
The best time for this type of loan is when interest rates are at their lowest point, giving you the best possible conditions to get lower rates on your new loan contract. Keep in mind that if rates do not go down, your best bet is to stay with your current mortgage lender simply. When looking for the best mortgage refinance rates, shop the marketplace before speaking with a broker or bank representative. By shopping on multiple websites that list the best refinance loan rates, borrowers can save time by filling out only one application form rather than spending hours calling brokers and visiting banks.
Steps to Refinancing
Before you refinance, determine the best type of loan for your needs by asking yourself three questions. First, are home values in your area increasing or decreasing? If they are on the rise, refinancing with a fixed-rate loan might be best. This is because when home values go up, you’ll likely be able to refinance at lower rates for a longer time period.
Second, are you planning to stay in the house long-term? If you are not planning to live there for more than five years, it might be best to go with adjustable rates since they are typically lower. Third, are your finances set up best for an ARM or fixed-rate loan? If you aren’t best-suited for an adjustable rate, the best option might be a fixed-rate mortgage.
By consolidating your bills into one fixed monthly payment to your current lender or a different one, refinancing allows you to clear up extra space on credit cards and other loans while also lowering monthly payments. For those looking for additional funds, such as toward home renovations, the best choice might be a home equity line of credit.
Considering these variables, you can save yourself some time and money while looking for the most desirable rates.