Homeowners refinance their mortgages for a variety of reasons; most often the reason is to save money and lower the monthly mortgage payment. There are a variety of other reasons for refinancing; here are several good reasons for refinancing your mortgage, in any economy.
Lower Your Monthly Mortgage Payment
You can refinance your existing mortgage loan with a lower interest rate to reduce your monthly payment amount. You can also reduce your payment by choosing a mortgage with a longer term length. Selecting a longer term length will lower your payment amount; however, you will pay more in finance charges over the life of the mortgage. Choosing a lower interest rate will save you money.
Shorten Your Term Length
Some homeowners refinance their mortgages to lower the term length of their mortgage. The reason for doing this is to build equity and pay off the mortgage at a faster rate. A side benefit of choosing a shorter term length is that you will qualify for a lower interest rate with a shorter term than you will with a longer term. Mortgages with short term lengths come with higher monthly mortgage payments, so it is important to budget accordingly.
Consolidate Your Bills
Many homeowners use equity in their homes to consolidate higher interest debt. You can do this by refinancing your mortgage for more than the balance due on your previous mortgage; the new lender will pay you the difference in cash at closing. You can then use this money to pay off your credit cards, car and student loans.
Switch to a Safer Fixed Interest Rate Mortgage
If you are a homeowner with an Adjustable Rate Mortgage and are concerned about interest rates rising, you may want to switch to a fixed rate mortgage loan. Switching will grant you security and stability knowing your interest rate will not go up at the hands of the Federal Reserve. If interest rates go down you can always refinance to take advantage of the lower rates. The main advantage of a fixed rate mortgage is that you can lock in your fixed interest rate for the entire duration of your mortgage.
Switch to a Different Mortgage Lender
Some mortgage companies are better to deal with than others. You may get better customer service, web access to your account, flexible loan terms or simply prefer to deal with a particular mortgage company. Be careful when choosing a mortgage company for these reasons; mortgage lenders routinely sell mortgage debt and the lender you have today might not be your mortgage lender tomorrow. Before refinancing your mortgage you should carefully evaluate the savings you will receive and how long it will take you to recoup the expenses involved. You can learn more about refinancing your mortgage, including common homeowner mistakes to avoid by registering for our free guidebook to mortgage refinancing: “Five Things You Need to Know Before Refinancing Your Mortgage.”