One of the many ways that financial experts have been telling people to save money is to look into having their home mortgages refinanced. You might be looking at engaging in a home refinance, but before you do that, you’re probably wondering if going with a refinance makes sense for you.
There are a number of ways that home refinancing can benefit you, including:
Lowers your interest rate.
When the economy was going well, interest rates were higher. This was done to keep inflation in check. However, when the economy hit a downward turn, the interest rates dramatically dropped. This means that if you refinance while interest rates are lower, you’ll be saving money every month when you pay your mortgage.
Adjusting the length of your mortgage.
When you refinance your mortgage, you can also adjust the length of your mortgage. If you’re doing better financially than you expected, you can actually take out a 15-year mortgage loan, rather than a 30-year loan. Granted, your monthly payments will be higher, but you’ll also pay off your mortgage a lot sooner, which means that you’ll save a great deal of money in the long run. In addition, many mortgage lenders offer lower interest rates on 15-year loans than 30-year loans.
Changing from adjustable rate to fixed rate
At one time, adjustable rate mortgages were quite attractive. By offering an initial lower monthly mortgage payment, individuals who were looking to increase their earning potential in the near future were able to get loans for larger amounts. The idea was that there would be a period of one to five years with a lower interest rate. That would be followed by a larger monthly payment. However, when the economy experienced a downturn, people discovered their financial situations were not as solid as they once thought. However, with a home refinance, adjustable rates can be changed over to fixed rate loans.
The refinancing process
The entire refinancing process is fairly straightforward. The first thing that a potential borrower does is fill out an application. After passing the initial credit history check, the borrower submits any required documentation the lender requests. When the lender gets all the paperwork confirmed, new loan documentation is provided and a closing is set up.
Cost of refinancing
There are fees associated with undertaking a refinancing. In most cases, the cost of the refinancing is between 3 percent and 6 percent of the entire loan refinancing amount.
There are two kinds of “no-cost” refinancing options available. In the first, the lender covers the closing costs but charges a higher interest rate. In the second, the refinancing fees are actually rolled into the cost of the loan.
Even with the cost of the refinancing and the low interest rates available at this moment, just about anyone who has a loan that’s older than three years would probably save money by engaging in a home refinancing. You might be surprised at just how much you’ll be saving every month.