Are you still contemplating the merits of refinancing? Below we’ve listed four reasons that could nudge you toward refinancing your home loan. This financial guide will help you to reduce your interest rate, adjust your loan’s term, consolidate existing debt, or tap into your home’s equity for cash. Continue reading to know how much it would cost you to refinance.
Lower Your Rate
The prospect of refinancing to a lower interest rate can translate into savings amounting to thousands of dollars in interest, mainly if the switch retains your existing loan term. For example, when you refinance a 15-year loan with another 15-year loan, and the newly acquired lower interest rate contributes to a decreased monthly mortgage payment.
Remember to compare the annual percentage rates (APRs) as you explore refinancing. The APR includes your base interest rate and any supplementary fees you must cover. The greater the divergence between your base rate and APR, the higher your closing costs will be upon finalizing your refinance.
Change Your Term
The flexibility to refinance your loan term is something to think about. Consider a 30-year mortgage term, indicative of the monthly payments you’ll make over three decades until your loan matures. Refinancing allows you to extend or shorten your loan term per your specific requirements.
-Extending your term: Opting for a longer term can be advantageous if you’re grappling with payment challenges. Transitioning from a shorter term to a longer one grants you additional time for loan repayment, ultimately resulting in a reduced monthly commitment. However, acknowledge that a longer term correlates with higher interest payments.
-Shortening your term: Alternatively, refinancing to a shorter term enables you to expedite your loan payoff. Although this option entails higher monthly payments, it culminates in substantial interest savings due to the expedited repayment. This route is advisable if your current income significantly surpasses when you initially secured the loan. Undertake thorough calculations and ensure your financial capacity aligns with the demands of a shorter loan term.
Consolidate Debt
Leveraging a mortgage loan for debt consolidation can be one of the most economical borrowing strategies. If a substantial load of high-interest debt burdens you, you can achieve monetary savings through consolidation via a cash-out refinance.
A cash-out refinance helps you tap into the equity of your home. Equity accumulates with each mortgage payment and appreciation in your home’s value. This equity signifies the portion of your home that you own. Upon full loan repayment, your property achieves 100% equity.
In this scenario, a cash-out refinance involves obtaining a loan exceeding your current balance, with your lender providing you cash in exchange for the equity. Many homeowners employ the funds from cash-out refinances to consolidate their debt. Although the cash-out refinance might not necessarily alter your loan’s term, interest rate, or payment, it may entail tax implications.
Accessing Cash for Varied Objectives
A cash-out refinance is not limited to debt repayment. Unlike other loan types, the funds from a cash-out refinance can be applied for numerous purposes. Whether increasing your savings, covering home repair expenses, or capitalizing on the potential tax deductions for capital home improvements, a cash-out refinance offers a compelling avenue to access low-interest funds for diverse endeavors.
