Why you should refinance
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Chances are that taking out a mortgage was a stressful and deliberate time in your life.
There are so many terms and stipulations you have to read and understand before choosing the plan that is best suited for you.
Now you have been making timely monthly payments for a couple of years and are wondering if you can lower these payments. Refinancing can accomplish this for you but should you do it?
The ezinearticles.com article, “ Mortgage Refinancing: Five Good Reasons to Refinance Your Mortgage” by Louie Latour, explains the benefits associated with refinancing your existing mortgage.
“Refinancing your mortgage can help you reach your financial objectives. If your goal is to save money, pay less to the lender, or build equity in your home there is a loan that will help you do it, regardless of what interest rates are doing. If mortgage interest rates are on the rise it means you will have to become a savvy shopper when comparing mortgage loan offers. There are still good deals to be had in today’s economy, you just have to work to find them.”
The first reason you will want to refinance your mortgage is to convert your adjustable rate mortgage into a fixed rate mortgage. Interest rates are on the rise and have been steadily increasing month-after-month for the past 18 months. While many people are waiting for interest rates to fall back to “normal,” this may not happen.
In fact, mortgage rates are rising to normal. Remember the 1980s, rates were at 18 percent. We have been spoiled by low interest rates for the past several years. Even though rates should not come close to the 18 percent mark, you should not expect them to go down to 5 percent anytime in the near future.
Another reason to refinance goes hand-in-hand with lowering interest rates is to lower your monthly payment.
“If you need a lower monthly payment for your budget there are several ways to get it. If you qualify for a lower interest rate you can lower your payment amount by paying less interest. Consider paying discount points to the lender in exchange for a lower interest rate. You can also lower your monthly payment by choosing a mortgage with a longer term length.”
A great reason to refinance that many people never think about is to cancel your private mortgage insurance (PMI). Your PMI is charge to you monthly if you make a down payment on the mortgage of less than 20 percent of the full amount of the loan. PMI benefits only the lender by insuring them in case of default payments. There is no benefit to you, the borrower.
“There are laws in place to protect you that require mortgage lenders to automatically cancel your policy once you have built up the required amount of equity in your home; however, you may be able to drop it sooner by refinancing with a lender that will not require Private Mortgage Insurance.”
Refinancing will also allow you the chance to cash out equity on your home, with low interest payments. People choose this option if they are in need of immediate finances from medical bills to paying for a child’s college education.
You may also want to refinance to get a different loan with different terms and stipulations altogether.
“If your current mortgage has a balloon payment or other unfavorable loan terms you can improve your financial situation by refinancing with a better lender. The mortgage industry is fiercely competitive; if you do your homework and negotiate for terms you can find a much better mortgage.”