Reasons to Refinance Your Home Loan
Refinancing your home loan is the smartest financial move and itcan be worth it if you plan on living in the same house for a long time since you can avoid those huge one-time charges. However, you often wonder if refinancing would make sense for you, and therefore, you prefer taking this decision by first understanding the reasons that refinancing would be a good option for you and whether it makes sense to do so in your particular situation. There are different types of refinancing that suit the needs and demands of different people, and the kind of refinancing that previously served as a good option for your friend oryour neighbor isn’t necessarily going to be a good opportunity for you since the long-term goals and financial picture of each person is different and unique from each other.
There are several reasons why homeowners may want torefinance their home loan, some of which include:
- Refinancing into a lower interest rate
The most obvious reason for refinancing is falling interest rates. A drop in interest rates means lower costs of financing. For example, if you have an existing 30-year mortgage at 6% and you have 25 years left on this mortgage, but rates in the current market go down to 4%, it is a wise idea for you to refinance into another 30-year mortgage at 4%. If you opt for this, it will increase your total interest payment since you will be resetting your loan, and paying your home off over35 yearsbut it will reduce your monthly payments.
- Refinancing into a shorter loan term
If you have an original mortgage of 30 years, you might want to refinance your 30-year mortgage with a 15-year mortgage, which will help you in reducing your interest payments but increase your monthly payments. You should only refinance into a shorter loan term if your new monthly payments are less than 25% of your total income as you don’t want all your income and salary going towards your house, right?Thus, if you aim to reduce the total interest payments on the mortgage, the 15-year mortgage is a good option for you but if you want your monthly payments to go down, the 30-year mortgage would be a better option. However, it is only wise to refinance if you plan on staying in the same house for a long time because later you will need to cover your closing costs as well.
- Consolidating high-interest debt
If
you have a large and heavy amount of high-interest debt on your personal loans
or your credit cards, refinancing lets you consolidate multiple debts of yours
into a single home loan. Cash-out refinancing at even a slightly higher
interest rate than before can help you in improving your cash flow situation
and save you money in the long-term, along with getting you out of your debt
faster.
To conclude, refinance is a tool which allows home loan customers to smartly
manage changes in circumstances to their advantage. Timely use of this tool
will help you reduce the cost of your home loan, and to do so, contact Opulent
Finance today!
