When Should You Refinance Your Mortgage?
Refinancing your mortgage essentially means that you are taking an existing loan and replacing it with a new one. This action could come about for a few different reasons. You might of just got a raise in your salary or you simply find that your current mortgage isn’t working out the way you hoped. Or you may find that your current interest rate is too high and you fear that it will cause long-term debt.
Overall, each homeowners financial situation is different, but refinancing a mortgage can be customizable to your specific needs. Adjustable-Rate (ARM) loans are typically associated with lower starting rates which then fluctuate with the market. Many people refinance their mortgage from an ARM loan to a fixed-rate loan so that they have a similar payment each month.
Whatever your current situation is at the moment, you might start to wonder: when should I refinance my loan? To help you out, here a few benefits of refinancing.
To Receive a Better Interest Rate
If you have the opportunity to decrease your current interest rate, it will usually pay out in the long run. By lowering your mortgage rate, you will have the ability to reduce your monthly payment if your repayment term (amount of time) is still the same.
Even the slightest increase in payment per month could drastically decrease the overall cost of your mortgage, therefore insuring a true benefit from refinancing.
Converting From an ARM Loan to a Fixed-Rate Loan
Most homeowners who are refinancing tend to move from an ARM loan to a fixed-rate loan because of an increase in interest rates. An ARM loan can fluctuate with interest rates, although the rate usually starts out low, and may be higher than a fixed-rate for the same duration of time.
In this case, you might consider refinancing to a fixed-rate where you could be paying less per month for the same amount of time, which in turn, results in more money saved on the mortgage. The exception for refinancing these two loans is when interest rates for ARM loans significantly decrease so that the period rate cap is actually lower than your monthly fixed-rate.
When it comes to home mortgages, you must always weigh your odds. You will need to take into account the overall benefit of each loan type instead of simply looking at the monthly payments.
When You’ve Accumulated Mortgage Equity
Equity of a home is the percentage of ownership that a homeowner possesses. After years and years of paying off the mortgage of a home, you will begin to accumulate a higher percentage of equity in your home. Refinancing with the use of equity for a home is often used for paying off large expenses such as remodeling, college tuition, purchasing a car, etc.
Equity can also be used to pay off incurring debt from student loans, credit cards, etc. The major contributing factor to these options is the interest rates for the debt sources themselves. Most homeowners who refinance for the purpose of paying off debt or large purchases do so because the home mortgage interest rate is lower than the interest rate of other said costs. All being said, it sounds alluring if these are necessary costs, but one must take into account all of the additional expenses and revoked equity of the home before committing.
How Can Prysma Lending Group Help?
Here at Prysma, we can help you with refinancing your mortgage. We work with most financial incomes and situations to help you get the mortgage you can be happy about. We also offer types of conventional and unconventional loans to start you on your journey to home ownership, and down the road we can help you save money through refinancing.