Refinancing your mortgage may be the right tool for you to save money every month or if you need money, you can also refinance your mortgage to take money out of your home.
A mortgage refinance simply means you will be getting a new home loan. This new loan will be used to pay off your current home loan. Simply put, you are replacing your current mortgage with a new mortgage.
There are many reasons why you should do this:
Why you may consider refinancing your mortgage
People refinance their mortgages for a number of reasons.
However, getting a lower interest rate is the #1 reason. A lower interest rate means the cost of your home loan will be lower, which should save you money not only today, but into the future.
Refinancing your mortgage can also help you lower your monthly mortgage payments, which will be especially helpful if you’re struggling to keep up with it.
Other reasons why people refinance their mortgages:
To save money and/or lower monthly payments – As mentioned above, the main reason people refinance their mortgages is to save money and lower monthly payments. The main way this happens is when your new mortgage has a lower interest rate than interest rate of your current home loan.
You can also stretch your loan out further to lower monthly payments. For example, if you currently have 20 years left on your mortgage, you can refinance with a 30 year term. This will lower your monthly home loan payment, however you will be paying more money for your loan in the long term.
You need money – If you need money to buy anything at all (car, home renovations, pay for education, etc), you can refinance your mortgage for more than what you currently owe on your existing home loan. This “extra” money is actually equity you’ve built in your home (money you’ve already put towards your home). Your refinanced mortgage will consist of a new mortgage, and essential a check you can use to buy things with.
To pay off debts (consolidate debt) – The interest rate on a home loan is generally much lower than other types of loans, like personal loans, auto loans, and especially credit cards. If you have a lot of debt that you’re paying high interest rates on, you can lump all these debts “under one roof” by refinancing your mortgage. These other debts will be combined with your new mortgage, which should have a lower interest rate than your other debts, saving you money in interest fees.
To pay off your mortgage faster – You can refinance your mortgage to a lower term. For example, your 30 year mortgage cane be refinanced to a 15 year mortgage. This means you’ll have larger monthly payments, and the benefit will be that you’ll pay your home off much faster. Also, if interest rates are good right now, you can pay your home off quicker and at a lower rate – saving you money.
Should you refinance your mortgage?
This totally depends on your unique situation.
Overall, if the new interest rate is lower than what you are currently paying, refinancing can save you money. Refinancing to a lower interest rate of just 1% can help you lower your monthly home loan payment by more than $100, and it will also mean the cost of borrowing overall will decrease as you’ll be charged less interest.
If you have a lot of debt, you’re in need of money to pay for any kind of expenses/purchases, or money is tight in general and you are having a tough time getting by, refinancing your home can give you the financial relief you need.How this works is that the money you’ve already paid into your home can be “taken out” to cover costs/payments for whatever else. You will need to have some equity built up in your home in order to qualify for this type of refinanced loan.
A popular way to lower monthly mortgage payments is to extend the term of your home loan. This likely means you’ll be paying more money for your loan in the long run, however if you’re having difficulty keeping up with bills, this may be a necessary option.
How do I refinance my mortgage?
There is no shortage of financial institutions who will gladly help you refinance your home loan.
You want to shop around and find the best rates. At the end of the day, the interest rate is likely what will make the largest difference.
I would get at least a few quotes from a few companies. Fortunately, you don’t need to call a bunch of companies. You can do this online.
A good place to start is a website that matches you up with many lenders at once, where you can easily compare rates and terms. You can use this one here.