Reasons Why You Should Refinance Your Mortgage

2009 December 23

“Should I refinance my mortgage?”

Home refinancing is a great way to lower your rate and reduce your monthly mortgage payments. But, there is more:

You want to save more money.
Your monthly mortgage payments will be reduced if you get a lower rate or with a longer term. With a longer term (15-year to 30-year), your monthly payment is lower but you’ll be paying more in total interest for the life of the loan. You are buying time with an extended term.

You want to pay off your mortgage quicker.
You can shorten the life of the loan by reducing the term. Your monthly payments will be higher, but you will be paying less in total interest. You will pay off your mortgage in a shorter time.

You need extra cash to pay off high interest debts, credit cards.
Through mortgage refinancing, consolidating your debts into one payment is viable if you have equity in your home. With the extra cash, you can pay off high interest debts, such as credit cards. Plus, the interest on credit card debt is not deductible unlike mortgage interest.

Instead of refinancing, another option is a home equity line of credit when you are faced with the need for additional cash. You can borrow against your home equity. Use a HELOC, similar to your checking account.

You wish to consolidate other loans into one.
You can consolidate first and second mortgages by refinancing into a single mortgage. Through mortgage refinancing, consolidating your loans into one payment is viable if you have equity in your home. The monthly payment on the new loan is likely to be lower than the combined payments on the first and second mortgages.

You want to get rid off private mortgage insurance.
Check the terms of your private mortgage insurance (PMI), if you have it. PMI is insurance for the lender. It is often required if you have less than 20% equity in your home. If you reach the required percentage, ask your lender to cancel it. Another way is that you can go for a mortgage refinance and not have to pay PMI, if your loan balance is below 80% of the appraised value of your home,

You want to convert an adjustable rate mortgage (ARM) into fixed rate mortgage.
This allows you to lock in at a fixed rate. You don’t have to worry about fluctuating rate each month. Thus, you will have the peace of mind with a stable monthly payment rather than variable payments.

Be a smarter shopper. Shop around for lenders. Consider using a mortgage broker, they can help you shop hundreds of lenders, so they can get you better rates. You’ll pay a brokerage fee, but your savings can offset that.

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