What are the Benefits of Refinancing Your Mortgage?
With interest rates at an all-time low, it may be time to start thinking about refinancing your mortgage with an independent mortgage broker. Before you make this significant financial decision, let’s take a look at some of the top benefits and risks associated with refinancing and if it fits your future financial goals.
Here is a brief overview around the benefits of refinancing your home loan:
1. Lower Interest Rates
One of the main reasons people refinance is to lower their interest rate, which can ultimately result in lower monthly payments. While interest rates are low right now, yours will depend on your credit score, debt-to-income ratio, and the value of your home — among other factors.
2. Pay Off Your Home Faster
When you refinance your home, you’ll have the option to do so with a shorter term, allowing you to pay off your mortgage sooner than originally planned. For example, many choose to go from a 30-year mortgage to a 15-year mortgage. While your monthly payments will likely be higher, you’ll be saving more money on interest in the long run.
3. Cash-Out Options
Have you built equity in your house? A cash-out refinance can put money back in your account quickly. If you’re looking to pay for home renovations or to consolidate debt, this could be a significant benefit you’ll want to take advantage of.
Here is an overview of the risks associated with refinancing your home loan:
1. High Closing Costs
When you refinance, you’re purchasing a new loan to pay off the previous loan. While you may be saving money with a lower interest rate or shorter term, there will still be closing costs that can quickly add up. While it’s recommended to budget roughly $5,000 for closing cost fees, that can vary depending on the individual agreement with your lender. Some lenders may also offer a no-cost refinance, where the costs are consolidated into your overall loan.
2. Decreased Home Value
While your home value is likely to increase over time, there is still a chance it could decline depending on your neighborhood, the housing market and more. If your home has lost value, it can affect the rate and terms lenders offer.
3. Locked in Your Location
Depending on the mortgage terms you receive, you may need to stay in your home for a few years to recoup your closing costs. Make sure you’re happy with your home and it’s location before spending the time, energy and funds on the refinance process.
If you’re ready to refinance, connecting with your local independent mortgage broker will help you understand your loan options better. They’re mortgage experts and ready to guide you through the process every step of the way.
Find your local mortgage broker today to get the refinance process started.