Why Refinance a Mortgage

Why Refinance a Mortgage

There are several reasons why Refinance a Mortgage, why you should refinance your mortgage, among which are the interest rate, which has fallen and should take advantage of that situation; it could be that current projections indicate that it will raise the interest rate or is likely your credit score has gone up and can pass for a better rate on the market, or maybe a matter of better service because it understands that the financial institution with the that holds the mortgage is not giving you the service you deserve or want.

The answers to these points will determine whether or not to refinance your mortgage. However, before deciding, mortgage borrower (assuming it's you, our readers) need to understand everything about why a mortgage refinance. 

Your home could be the most valuable financial asset, so you must be very careful of how and when choosing a lender or mortgage broker as well as the specific terms of the mortgage. Remember that the pair of the potential benefits of refinancing, there are also costs involved.

When you refinance, you pay off your current mortgage and create a new one. You can even decide to combine both the first mortgage and the second in a new one. Refinancing can you remember everything that went through the first time to get your original mortgage, and can facilitate the process and you could find many of the same procedures and the same type of costs, when applying for a second time.

5 reasons to consider of why refinance a mortgage.

The following are some reasons why you should consider mortgage refinancing:

1. Reduce the interest rate

The interest rate on your mortgage is tied directly to how much you pay for your mortgage each month. Lower interest rates usually mean lower payments. You could get a lower interest rate due to changes in market conditions or because their financial credit improved. A lower interest rate also could create equity in your property faster.

2. Set the term of your mortgage. 

a. Increase the term of your mortgage

You may want a mortgage with a longer term to enable it to reduce the amount of monthly payment. However, this would also increase the term of the mortgage payments and the total amount of interest you end up paying.

b. Reduce the term of your mortgage

Short-term mortgages, for example a mortgage of 15 years instead of 30, usually have lower interest rates. Also, if you pay your loan earlier than agreed, will allow you to reduce your costs even more. In return, your monthly payments tend to be higher because they would be paying more of the principal each month.

We compare the total cost of the interest on a fixed rate loan of $ 200,000 at 6% for 30 years versus fixed rate loan at 5.5% for 15 years:

Total interest monthly payment

Loan at 6% for 30 years $ 1,199 $ 231,640

5.5% loan for 15 years $ 1,634 $ 94,120

Underestanding Why refinance a Mortgage or Refinancing is not the only way to reduce the term of a mortgage. Pay a little more of the principal each month will allow you to repay the loan sooner and reduce the loan term. For example, adding $ 50 monthly to each principal payments on the loan 30 years mentioned above, would reduce the term in 3 years and would save more than $ 27,000 in interest and costs.

3. Changing a mortgage variable rate mortgage to a fixed rate

If you have a variable rate mortgage, or ARM (Adjustable Rate Mortgage) for its acronym in English, your monthly payments will vary by changing interest rates. With this type of mortgage payments may increase or decrease.

In the future you might find in a somewhat difficult situation if your payments rise. In this case it would be advisable to consider a change to the type of fixed-rate mortgage in order to achieve peace of mind to know in advance the monthly performed with a fixed interest rate payment. In case you avizoré that interest rates will increase in the future, you could also opt for a fixed rate mortgage.

If the monthly payment on a loan with a fixed interest rate includes a reserved for paying taxes and insurance amount, the monthly payment may change over time due to changes in the costs associated with property taxes, insurance or charges the homeowners association.

4. Getting a better variable rate with better terms and deadlines

If you have a loan with a variable rate, the next adjustment in the interest rate would increase your monthly payments substantially? If so, you might choose to refinance and get other variable rate mortgage with better terms and deadlines. For example, the new mortgage would begin with a rate lower interest, would offer small adjustments in the interest rate or payment limit would allow smaller amount, which would imply that the interest rate could not exceed a certain amount.

If you are refinancing from a variable rate of interest to another, check the initial rate and the fully indexed rate. Also ask about the rate adjustments you might face during the time of the loan.

5. Getting cash equity built in your home

Housing equity is the monetary value of the difference between the balance you once had in your mortgage and the value of the property. When refinanced by higher housing the due amount, you may receive the difference in cash settlement, also called cash-out refinancing or cash-out refinancing in English. You can choose to do this if, for example, needs cash to make home improvements or to pay for education of their children.

Remember that when you use equity, you own less of your home, so you will have to rebuild their equity again. This means that if you need to sell your home in a future not get the surplus from the sale, and in many cases the amount you get is not substantial.

If you are considering refinancing cash withdrawal, also consider other alternatives about why refinance a Mortgage. There are two types that may suit your needs. One is the home equity loan and other credit line of home equity. Compare a loan of home equity refinancing with cash out to see which offers the best terms and conditions.

Many financial advisors advise to be careful with home equity loans to pay off unsecured debt like credit cards, or to cover short-term secured debts like car loans. In this situation, it is best to consult with professional experience in the financial field to help you explore all possible alternatives and informed of the pros and cons of each option. Remember that the information and statements contained in this article is informative, more does not constitute professional advice.