Sometimes life does not go as planned. Circumstances may have changed drastically since you signed the papers on your original home mortgage. Whether you are struggling financially or simply want to secure a better mortgage deal, it may be time to consider refinancing. Here are three major reasons to think about refinancing.
1. Low Mortgage Rates
One of the most common reasons people refinance is to secure a lower interest rate. Since mortgage rates vary over time due to a variety of factors, today’s rates may be significantly lower than when you took out your original mortgage. If current interest rates fall 1-2% below your old rate, you might want to take advantage of rate-and-term refinancing. With rate-and-term refinancing, you exchange the terms on your current loan for a new and improved interest rate and term while the overall principal owed on the mortgage remains the same. This is one of the simplest and most popular refinancing options.
2. Home Improvements or Debt Consolidation
A different type of refinancing option is a cash-out refinance. A cash-out refinance uses the equity in your home to help you secure a new mortgage loan in which you borrow more than you owe. You can then keep the difference in cash. It is a way to tap into your home’s equity ahead of time. The additional on-hand cash can be helpful for making large-scale home improvements or repairs. Especially since money spent on repairs will ultimately flow back into your home’s equity. You can also use the funds to consolidate debt into easy, monthly payments and pay off high-interest credit card loans. However, be careful doing so, as you are rolling unsecured credit card debt into a secured home loan. Lenders like Sun West Mortgage can explain the risks and rewards associated with each course of action and guide you on the path to safe and successful refinancing.
3. Switching From ARM to Fixed-Rate Mortgages
Another popular reason for refinancing is switching from an adjustable-rate mortgage to a fixed-rate mortgage. If rates are nearing historic lows, it may be wise to lock in at a fixed rate before your ARM resets to a higher rate. Additionally, fixed-rate mortgages provide stability and a sense of security. Changing to a fixed-rate mortgage is good for times of financial uncertainty, and it helps you to establish a more consistent budget.
Like many major decisions, there are pros and cons associated with any type of refinancing. It is important to thoroughly weigh your options and evaluate personal and economic circumstances before making a decision. Nonetheless, for many homeowners, refinancing offers sound means of getting their finances back on track.