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Over the past few years, there have been many new people entering the real estate market. If you’re one of those people, and you’ve been good about making your monthly payments on time, then you may qualify to refinance your mortgage. Why should you refinance? There are many different reasons that a refinance can help you. From lowering payments to eliminating debt to planning for the future, when you refinance your mortgage you’re making a smart financial decision that can help you and your whole family.
Lower Your Monthly Payment
This is probably the most beneficial and popular reason for refinancing your mortgage. If current mortgage interest rates are lower than when you originally financed your home, or if you have paid off a significant portion of your mortgage, then you can refinance to drastically lower your monthly payment. Of course, once that monthly payment is lower, you can use that money for anything else you may need, or you can in turn put that back into your home or savings to really plan for a strong financial future.
If you’ve paid off some loans or your car, or maybe you’ve been given a nice raise at work, then consider a refinancing option to change your loan to a 15 or 20 year mortgage instead of the traditional 30-year plan. By making a higher monthly payment with this new mortgage, you can pay your home off as many as five or 10 years earlier, and you’ll be building your equity much faster. Then you can use that equity to pay off other loans, send a child to school or make some home improvements.
Change Your Loan
Maybe you didn’t have the best credit when you first applied for your mortgage, or maybe you didn’t quite understand the different types of mortgages available. Whatever the reason, if you’ve ended up with an adjustable rate mortgage, you may want to refinance so you can get a fixed rate mortgage. Many people have adjustable rate mortgages, which result in monthly payments fluctuating regularly. A fixed rate mortgage is much more secure and doesn’t change on you, so it tends to be a much more desirable type of loan. You can also get fixed rate or adjustable rate mortgages in 30, 20 and 15-year options.
Pay Off Debt
In many cases, you may be able to refinance your mortgage for a lower interest rate. Plus, if you’ve been paying your mortgage regularly for a while, you’ll end up with some cash back after you refinance. You can use that cash back to pay off your debt and continue to improve your credit score. This is especially helpful for anyone who may have some high interest rate credit cards that have yet to be paid off, or any high interest rate loans that you’re still making regular payments on. Refinancing your mortgage can actually do a lot to continue improving your credit score, provided you’re making payments regularly and on time.
Use Your Equity
If you’ve owned your home for a while, then you’ve built up a lot of equity. You can use that equity to do just about anything you want. Go for a vacation, help pay for the kid’s college, buy a car or make some home renovations. This works best when you’ve built up plenty of equity, have been responsible with your monthly payments and you have a good credit score. If you meet those three things, then you may want to consult with your broker to see if your equity can be put to work for you. Just keep in mind that this means you’ll be adding more years to the life of your loan, so this isn’t a good option for anyone looking to move or sell their home soon.
Deborah Flomberg is a theater professional, freelance writer and Denver native. Her work can be found at Examiner.com.