When a person purchases a home, more often than not, they get a mortgage to help pay for that home. A mortgage often has specific terms on how long the mortgage will last and what interest rates will be paid throughout that term. These things are based on the current economy, as well as the credit standings and personal needs of the buyer.
After being in the home for some time, situations may change. This could prompt the homeowner to consider refinancing their loan. Refinancing can offer a variety of benefits that can help the homeowner find terms that better suit their situation. These are some of the more common reasons for refinancing.
Lower Interest Rates
One of the best reasons for refinancing a loan is to get lower interest rates. With interest rates low now, it’s a good idea to refinance your housing loans with Dollarback Mortgage. Reducing interest rates can greatly reduce the overall cost of a mortgage.
In some situations, a homeowner’s interest rate may be higher due to their financial situation at the time of the original loan. If a homeowner’s credit score has gone up during their time in that home, it could be a good idea to check with a mortgage company to see if they could qualify for a better interest rate due to their higher credit rating.
It has long been recommended to refinance if it is possible to reduce the interest rate by at least 2%. However, many experts believe that even a reduction of 1% could provide great savings for homeowners.
Shorten the Term of the Mortgage
Very often, those getting a mortgage for a new home will opt for a 30-year mortgage. This breaks up the payments over a 30-year period to make the payments a little easier to budget for homeowners. However, this essentially locks a person into paying a mortgage for an entire 30 years.
If a homeowner’s situation changes where they can budget higher payments or they wish to move out of the home sooner than they previously thought, refinancing a mortgage for a shorter-term may be a good option. Whatever the reason, changing the terms of the loan could allow a homeowner to finish paying off their home a lot quicker.
Utilize the Equity in the Home
The equity in a home is basically the balance of the fair market value of the property minus the balance on any loans or liens on the home. For example, if the remainder of the mortgage is $50,000 and the fair market value of the home is $75,000, the equity in the home is $25,000.
Equity can be built simply by paying down the mortgage. It can also be built by making improvements to the home that bring up the overall value of the home. It can also build up when property values go up in the area.
Refinancing a home can allow a homeowner the ability to get a mortgage for the total value of the home and use the equity money for other expenses. This can be a great benefit if there are major purchases or financial difficulties that must be managed.
Refinancing can provide many benefits to a homeowner. Whatever the situation, if planning to refinance, contacting a mortgage consultant can help identify the options available and help with the refinancing process.