Mortgage interest rates have been rising recently; however, there are still many great reasons to refinance your mortgage, regardless of interest rates. If you need a lower monthly payment you can reduce the mortgage payment by choosing a mortgage with a longer term length. There are also adjustable rate mortgages with interest only and optional payments to help you meet your financial goals. If you are on the fence about refinancing your mortgage, here are five excellent reasons for taking out a new mortgage loan to help you make an informed decision.
I. Reduce Your Monthly Payment
If you plan on keeping your home for a number of years, qualifying for a lower interest rate will save you thousands of dollars over the life of the mortgage. It may even be in your best interest to pay a point or two upfront in order to qualify for a lower interest rate. If you will not be staying in the home, refinancing may not be a good idea as you need time to recoup your expenses from mortgage refinancing. Generally speaking, the longer you plan on staying in your home, the more sense it makes to refinance your mortgage.
II. Convert Your Adjustable Rate Mortgage
Converting your Adjustable Rate Mortgage (ARM) to a Fixed Interest Rate Mortgage could save your financial peace of mind when interest rates are rising. Many homeowners used Adjustable Rate Mortgages to purchase their homes because of lower initial monthly payments and easy qualification. These mortgages come with an introductory interest rate that is only valid for a period of time specified in the loan contract. At the end of the introductory period the lender will reset the mortgage to the actual interest rate and your monthly payment will go up significantly. Refinancing to a fixed interest rate could help you avoid a financial crisis when the lender resets the loan and you can no longer afford the payments.
III. Avoid Expensive Balloon Payments
Balloon mortgages are loans that come with low payments for a short period of time. At the end of this timeframe the entire balance of the loan becomes due. This is where “balloon” payments get their name. The loans typically last for 5 to 7 years before the entire loan balance is due. If you are approaching your due date of the balloon mortgage, refinancing the loan could help you avoid the balloon payment.
IV. Drop Your Private Mortgage Insurance
If your existing mortgage required you to purchase Private Mortgage Insurance, you can lower your monthly payment by as much as several hundred dollars by refinancing the loan. Private Mortgage Insurance is expensive and does nothing to protect the homeowner; it only protects the mortgage lender from certain losses if you default on your mortgage. As you build equity in your home you will be able to drop Private Mortgage Insurance when refinancing the loan.
V. Borrow Against Your Home’s Equity
Home equity loans are an excellent source of secure credit. Taking cash back when mortgage refinancing can quickly get you the cash you need to make repairs or renovations, consolidate your debts, pay educational expenses, even buy a new car or take a vacation. All of these expenses become a tax deduction when your refinance your mortgage and take cash back.