A mortgage refinance can be a double-edged sword. On the one hand, a refinance can help you tap into valuable home equity to use for purchases and debt consolidation or to access a lower mortgage rate. On the other hand, a mortgage refinance can be a costly procedure and may not serve your long-term financial interests. However, there are several very good reasons to refinance a mortgage, and taking a hard look at your own finances is a good place to begin.
5 Long-Term Interests
A mortgage refinance can be somewhat costly. There are appraisal fees, title costs, attorney fees and lender origination fees to consider. Therefore, performing a refinance should be a long-term financial solution. If you plan to stay in your home for a long time or if you plan to start a family in your mortgaged home, finding a suitable, affordable and financially viable long-term mortgage refinance may be able to help stabilize your future financial interests.
4 Improving Your Terms
Some original mortgages, which you may have gotten when you were younger and didn’t have more of a choice, don’t have the best terms… such as interest-only mortgages and balloon mortgages, which are not meant for the long-term, and basically do not help you at all when it comes to building equity. In this case, a more solid mortgage, such as a 30-year fixed, will help you be able to build equity (and, thereby, peace of mind) much more easily.
3 Debt Consolidation
A mortgage refinance that combines other secured and unsecured credit accounts is often referred to as a debt consolidation refinance. These programs are popular with borrowers who have extensive unsecured credit card debt or second mortgages and equity loans. A refinance that combines all debts into one first mortgage can be an effective way to manage all debts in one payment. Most lenders will recommend that a debt consolidation refinance be performed only once to minimize the cost of consolidation.
2 Fixed-Rate Mortgage
During the credit boom during the early 2000s, many mortgage customers took advantage of extreme low rate mortgages. The problem, however, was that many of these mortgage rates were adjustable and could fluctuate with the prime rate or the LIBOR (London Interbank Offered Rate). Many consumers with adjustable rate mortgages that are currently fluctuating are seeking help from lenders to get into fixed-rate mortgage programs. A fixed-rate mortgage will never fluctuate, regardless of market conditions.
1 Rate and Payment
One of the best reasons to refinance your mortgage is to obtain a lower mortgage rate and subsequently, a lower mortgage payment. If you are currently paying on a mortgage with a rate that is higher than the market average, it might be a good idea to reach out to credit unions, banks and mortgage brokers to get a sense for what lenders are typically offering. It is important to have a full understanding of your own creditworthiness prior to submitting a new mortgage application.
