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How and Why to Refinance Your Mortgage
Refinancing refers to replacing a homeowner’s current home loan with a new home loan. There are many reasons why you may want to refinance your mortgage. However, some homeowners might not be aware of the benefits that come with refinancing.
The purpose behind refinancing a home loan may be to lower the current interest rate, lower the payments, or pay off the balance of the loan faster.
When and Why Should You Refinance?
Certain goals can be met if a homeowner decides to refinance their home loan, but it’s important to be sure about the decision. The reasons why homeowners seek to refinance their home loans may be one of the following:
- Paying off the loan quicker:
Some homeowners might want to change a 30-year loan into a 15-year loan. If their financial circumstances have changed, they may want to pay off their home as soon as possible. - Eliminating mortgage insurance:
Often, homeowners refinance their loans to drop private mortgage insurance. When it comes to FHA loans, the only way to get rid of mortgage insurance is to either sell or refinance the house. - Reduce interest rates:
If a homeowner applied for a loan during a time when interest rates were high, it might be worth considering refinancing. This way, they can take advantage of a lower interest rate and by extension, lower the remaining mortgage payments. - Reducing mortgage payments:
Besides lowering interest rates, homeowners might refinance their loan for lower payments. This can happen in a number of ways, one of which involves extending the loan term.
There is not a lot of time restrictions when refinancing, though most lenders will not refinance on a home when the loan is less than 180 days old. In these circumstances, it’s optional to seek out a new lender.
Should You Refinance Your Mortgage?
As with any financial agreement, it’s important to weigh the pros and cons of getting into a new home loan. Homeowners who find that their monthly payments are too high often refinance to lessen their financial burden.
While refinancing seems like a great solution for any home loan problem, it’s in a homeowner’s best interest to check the fine print. From there, they can better decide on the best course of action to benefit their situation.
