Refinancing a mortgage means paying off your current mortgage and replacing it with a new home loan. Doing it can seem tempting, especially when refinance home loan rates are low. But before going through the process, keep in mind that it is a major financial transaction. It can save or cost you money, depending on your goals and circumstances.
To learn more about how a mortgage refinance can help you and determine if now is the best time to take out a new mortgage, you should completely understand how it works. Here are several signs for why it makes the most financial sense:
1. You Want to Shorten Your Loan Term
Many first-time borrowers start out with a 25-year home loan. If you want to become debt-free much faster and save a significant amount of money in interest, consider refinancing to a 15-year fixed-rate mortgage. Besides being able to shorten your term without a big increase in your monthly payments, doing this lets you build your equity faster. This is especially helpful if you are planning to sell your home.
2. You Prefer a Better Mortgage Rate
Refinancing lets you lower the interest rate on your current mortgage. This allows you to save money, boost the equity in your home, and reduce your monthly payment. To figure out if refinancing is a good idea, a rule of thumb is to ensure you can reduce your interest rate by a significant percentage rate to make it worthwhile.
3. You Prioritize Having Lower Monthly Payments
You could save money through refinancing. When you lower the interest rate, you can also lower your monthly payments. This is particularly true if your new loan has the same payoff date as your previous mortgage. Additionally, you can lower your monthly payments by extending the payoff date so you can pay less in principal.
4. You Want to Have More Predictable Costs
If you took out an adjustable-rate mortgage (ARM), you may notice that it starts at a low, fixed-rate for a specific term. But that rate may increase for the remaining loan term after this pre-specified term ends. Thankfully, you can secure a low initial rate by converting your existing mortgage into a fixed-rate loan. Doing this strategy is ideal for you if rates recently dropped, and you now prefer a predictable payment.
5. You Need to Borrow Money
You never know when a financial crisis can happen. If you need quick cash, you can take some out from your home equity with a cash-out refinance. It lets you obtain funds for any purpose as long as you have over 20 percent equity. So whether you need money for education or immediate roof repair, you can get the money you need to cover these expenses.
6. You Have to Remove a Person from a Mortgage
Some major life changes like a divorce can cause someone who originally signed onto a mortgage to be no longer held financially responsible. To remove that person from that loan and free them of liability, refinancing is necessary.
There are many reasons why refinancing can be beneficial for you. But just like any other big transaction, it comes with risks and disadvantages. For this reason, make sure to consider the list in this guide and do the math. If you think it’s time to refinance your mortgage, reach out to trusted mortgage agents.
Whether you prioritize lowering your monthly payments, increasing your cash flow, or shortening your loan term, you can get the best mortgage refinance rates from Ottawa Mortgage Services. We take the time to understand your situation and assess the right mortgage solution for you. Contact us for a free consultation!