One of the best things to do before taking out a traditional mortgage is to investigate refinancing. It’s not always clear why you would want to refinance your mortgage, but there are many instances where it makes sense. The following are some reasons why you should refinance your mortgage:
- YOU WANT A LOWER INTEREST RATE.
If you take out a new mortgage, you’re locked into the rate at the closing time. If the interest rate goes up after you sign your mortgage, you can’t refinance to get a better deal. However, it is possible to refinance with the same lender and have them give you a better rate since it’s your own money.
- YOU WANT TO LOWER YOUR MONTHLY PAYMENTS.
When you start paying off your mortgage, you may notice that each month’s payment feels smaller than it used to be. Sure, you’re getting a lot more houses for the same amount of money, but at the end of the day, you’re still paying $600 per month for your home. You could save that money by refinancing your mortgage.
- YOUR INTEREST RATE IS CREEPING UP.
When you take out a new traditional mortgage with a fixed interest rate, it might be tempting to move to a variable term and let the rate increase while you enjoy your lower payments. However, after making the switch, the rate will go up on the variable mortgage, and you’ll feel the difference. Refinancing is a way to avoid this.
- YOU WANT TO GET A BETTER RATE ON YOUR MORTGAGE.
If you have made all your mortgage payments on time, your credit score will have improved. It would help if you took this opportunity to refinance your mortgage and take advantage of the lower rates with good credit scores.
- YOU WANT TO CHANGE HOW YOU PAY OFF YOUR HOME LOAN.
A traditional mortgage requires a fixed monthly payment. With this type of mortgage, the amount you are allowed to borrow is based on that one payment. When you refinance your mortgage, you could decide to pay off the principal over time or at least spread out the payments over a more extended period while allowing yourself the opportunity to save money.
- YOU WANT TO PAY OFF YOUR HOME LOAN SOONER.
If you have a traditional mortgage, you will pay the same monthly amount until the loan is paid off. With a refinanced mortgage, you can spend more than that, and the lender will still let you borrow the same amount.