Securing a lower mortgage rate may be one of the best reasons to refinance, but it’s not always why a homeowner might decide to go the route of refinancing their home. Generally speaking, refinancing can save you money in interest payments throughout the life of your loan, which could make it easier to manage your mortgage payments. Let’s take a deeper look at some of the reasons you may want to refinance.
You Need to Change Your Loan Term
When interest rates fall, homeowners can often significantly shorten their loan term by refinancing without much increase in their monthly payment. For homeowners who have high interest rates, a rate-and-term refinance is a great way to lower the amount you will pay in interest over the term of your loan. For instance, if you can save at least 1% on your current mortgage rate, you could potentially save tens of thousands of dollars in interest throughout the lifetime of your loan.
Financing Home Renovations
Tapping into your home equity can also help you add value to your property. A cash-out refinance can help you pay for renovations or repairs that will make your home more attractive to buyers.
Financing the Purchase of a Second Home or Rental Property
Purchasing an investment or second home will require a significant amount of money. A cash-out refinance can help you put money toward a down payment. The potential income you receive from your new rental property could be well worth it.
Convert Between Adjustable-rate and Fixed-rate
Homeowners who have an adjustable-rate mortgage (ARM) and are nearing the end of the initial fixed-rate period may find that refinancing to a fixed-rate mortgage will save them from future interest rate hikes. Since the interest on fixed-rate loans remains the same throughout the loan term, refinancing will save you the headache of worrying about how high rates may go up in the future. While it may seem like now is a good time to refinance, it’s crucial to think through why you want to refinance your home in the first place.
