Reasons to Refinance
You’ve heard about refinancing and home equity and all
of that second-mortgage jargon, but you are not sure whether or
not you are a good candidate for any of it. What benefits will
you get from it, why should you consider it? Well, there numerous
answers to these questions. But if you want a better understanding
of the overall refinance-picture, there are a few common reasons
for refinancing that you should know.
Many mortgage borrowers refinance to shorten the term of their
mortgage. If you obtain a 15-year loan instead of a 30-year loan,
you are able to pay off your loan faster meanwhile paying lower
interest. You will obtain equity much faster should you ever want
to “cash out.”
If you refinance for more than the remaining balance on your
old loan, you will be tapping into your equity that you can use
for things such as home improvements, college or auto loans, or
other important investments. You can open an equity loan and receive
a lump sum of the equity or apply for an equity line of credit,
which allows you to charge your equity and take it out on an as-needed
Many home owners refinance to change their adjustable-rate mortgage
to a fixed-rate mortgage. You will reduce your payment by doing
this, and if you do so at the right time, you will lock in a very
competitive rate that will stay the same for the rest of your
A lot of mortgage borrowers refinance when the market is good.
If the rates are low, refinancing can be a good option to obtain
those desired rates. If the rates are high, some will refinance
to avoid the fluctuating market and get a fixed rate that will
not change again.
Remember that you do have to pay refinancing costs which are
similar to the costs you paid to close on your first mortgage.
This may affect your decision to refinance to save. You will want
to think about all of the costs and savings, to see if you are
really saving, spending or merely breaking even.
As with your original home loan, the mortgage company will offer
you a range of different interest rates dependent upon discount
points you pay to lower the rates. One point should equal one
percent of the loan amount. Four points on a $100,000 mortgage
should be $4,000 of refinancing. Although discount points are
costly at the time, they will lower your interest rate for the
rest of your loan’s life.