Understanding When You Should Refinance
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Part of the American dream has long been to own a home that you can call yours. If you have achieved that, then you are to be commended. At the same time, this is one of the biggest investments that you will ever make in your life. Paying for it will impact your individual and family finances for years to come. While you never want to lose your house because of an inability to make ends meet, there may be some very good reasons down the road that will lead you to refinance it. You might be wondering right now if this is a good option for you not. Here are a few guiding principles that should help make the right decision.
Lower Your Interest Rate and Monthly Payments
When you got your initial mortgage, there was a certain interest rate attached to it. This is often determined by prevailing market conditions, your credit rating, and a variety of other factors. Over time, the situation may change and you can end up getting a lower interest rate if you refinance the loan. Doing so may lower your monthly payments as well, giving you more money in your pocket.
Pay Off the Home More Quickly
You should also talk to a loan officer and a realtor to determine if refinancing your existing mortgage will allow you to pay off your home more quickly. If you can do this, then you will secure a brighter financial future for you that is free of monthly mortgage payments. You will want to look at refinancing if you are able to accomplish this. You’ll be amazed at the long-term savings that come with a lower interest rate.
Change from An Adjustable to a Fixed Rate Mortgage
Many people get into a home with an adjustable rate mortgage. This provides you with a lower initial monthly payment, but that can change over time as the rate increases. If you can switch to a fixed rate mortgage, then refinancing is a good option for you. This will help you to set a more stable monthly budget.
Get Cash to Pay Off Other Debts
You might also consider refinancing if you have other debt that has been incurred at a higher interest rate. There are some programs where you can get cash back in your pocket when you refinance due to the equity in your home. If so, then you can use that money to pay down your other debt.
These are all good reasons why refinancing might make sense for you. The key is to use refinancing as a way to improve your existing financial condition, while still preserving your existing home. If you can do that, then this is an option that you will certainly want to pursue.
Kara Masterson is a freelance writer from Utah. She enjoys Tennis and spending time with her family.
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