Your home mortgage is an important investment in your future, and a mortgage refinance can be a smart move to help you manage your investments when used under the right circumstances. Here are some things to consider about refinancing your mortgage.
Simply put, when you refinance your mortgage, you are taking out a new loan to pay off your original mortgage, so the first question to ask yourself may be is there a better product available to you than what you started with?
Refinancing allows you to borrow against the equity you have built up in your home and take out cash you can use to pay off other debt, make home improvements, or invest in your retirement. For example, letβs say you have $70,000 of equity in your home, but still owe $175,000 on your mortgage. You may take out a new mortgage for $200,000 that is used to pay off the first mortgage, and then pays you $25,000 in cash. If you have made regular payments on your initial mortgage for at least five years, you probably have enough equity built up to take a cash-out mortgage.
Refinancing is also a way to reduce your monthly payment to give you more flexibility in your monthly budget. When you refinance, you are basically starting over on your 30-year commitment, but, if you are not taking cash out, your new mortgage amount will be lower, so your payments decrease.
If you originally took out a 15-year mortgage, changing to a 30-year term will lower your monthly payment considerably.
You may also choose the opposite and switch from a 30-year loan to a 15-year term. Your monthly payments will likely increase, but you will pay your loan off earlier and pay less interest.
Another reason people refinance is to change from an adjustable-rate mortgage (ARM) to a fixed-rate. This eliminates fluctuations in your monthly mortgage payment and may help you take advantage of favorable rates.
As we’ve explored in this blog, refinancing can be a smart move when it aligns with your objectives. It can potentially lower your monthly payments, reduce your interest rate, and even provide access to much-needed cash. However, it’s important to approach the decision with careful consideration.
Before you refinance, take the time to evaluate your current mortgage, your long-term goals, and your ability to cover the associated costs. Consult with financial experts or mortgage professionals to weigh the pros and cons.
Remember, the key is to make a well-informed decision that serves your financial well-being. It might be a smart move for some and not for others. Ultimately, what’s most important is ensuring that your choice aligns with your unique financial circumstances and objectives. So, weigh the options, crunch the numbers, and make a decision that’s right for you and your financial future.