Many people seek mortgage refinance for numerous reasons. Most common reasons one would consider a refinancing option include the need to improve the interest rates, cash out to renovate their asset, consolidate debts, shorten their loan term, among other reasons.
In this post, one should find the most common reasons for refinancing.
1. Improve the Interest Rate
Perhaps when taking the current mortgage, the interest rates were high, but they have significantly dropped. To take advantage of the lower rates, borrowers could seek mortgage refinancing.
Some lenders reserve mortgages with reduced interest rates for new customers. If the borrower's current lender is offering mortgages at unfavorable terms to existing borrowers, one may obtain a new loan to benefit from the lower current mortgage refinance rates.
It is possible for borrowers looking for reduced interest rates on mortgages toobtain mortgage refinancing. The lower interest rates enable the borrowers to incur reduced monthly expenses, and they can save more.
2. Offset Accounts and Redraw Facilities
Some borrowers prefer mortgage refinancing because they can access new mortgages with better repayment terms. Mortgage refinancing may likely be favorable to each borrower's financial needs. However, some borrowers may face difficulties when comparing terms for different home loans.
Lenders offer offset accounts or redraw facilities that can enable borrowers to make less monthly repayment amounts. Borrowers can repay their home loans without straining.
When searching for refinancing home loans, borrowers can read the mortgage reviews or get a mortgage broker to advise. The broker will advise and search for a good refinancing home loan on behalf of their client.
3. Ability to Renovate Your Asset
Home renovations are crucial in upgrading the home value. Timely renovations ensure the house does not develop further damages that require major repair.
Notably, the cost of home renovations is high. Also, failure to perform the upgrades when necessary can lead to more damages and lower the house value. However, the homeowner may not have enough money to renovate the house when it's crucial.
To perform the house renovations in time and prevent costly repairs in the future, the homeowner may have to borrow additional funds. Unless the homeowner has saved enough funds for renovations, one can consider obtaining a mortgage refinancing facility to cater for the costs.
4. Purchasing and Investment Property
Investing in property can be expensive and can require a considerable amount of money. Some homeowners acquire property through mortgages. Notably, a homeowner may want to obtain additional property even before repaying the current mortgage fully.
The borrower may need a new mortgage to acquire the new property. But, instead of obtaining a new mortgage, the homeowner can get refinancing and cash out to acquire the new property.
Many homeowners prefer mortgage refinancing when they need considerable funds to acquire additional properties. Some lenders offer loans of up to 80% of the borrower's property value. Additionally, some lenders allow borrowers to borrow more if they are willing to pay mortgage insurance.
5. Debt Consolidation
A borrower can use mortgage refinancing to consolidate debt. For instance, when the borrower has other debts with high-interest rates, mortgage refinancing can be used to pay off the existing debts.
By paying off the other loans that charge high-interest rates, the borrower will be making less monthly payments hence saving more.
Interestingly, although mortgage loans enable the borrowers to make reduced monthly repayments, they can have negative implications in the long term.
Therefore, before obtaining mortgage refinancing, one can get advice from a mortgage broker on both the short-term and long-term implications of debt consolidation.
6. Shorten Your Loan Term
Many borrowers find that paying a mortgage over a shorter time is beneficial to them. Reduced interest rates impact the time one repays the loan. Lower interest rates mean a reduced amount of loan repayment. The homeowner can pay for the new loan for a shorter time under the new favorable terms.
Therefore, if one is looking for ways to shorten the loan repayment period, obtaining a loan refinancing can be one of the options.
By mortgage refinancing, the existing loan is fully repaid and replaced with a new loan with possibly better current mortgage refinance rates.
7. Convert Between Mortgage Types
Mortgage refinancing enables the borrower to access different types of mortgages with different terms.
Mainly, there are different types of mortgages, and each has different terms.Each mortgage type has distinct advantages and disadvantages. While some of the mortgage facilities are unfavorable, some favor the borrower. Based on specific borrowers' needs and circumstances, one mortgage type can be better than the other.
If the borrower wants to take advantage of another mortgage type without obtaining another loan, one can consider mortgage refinancing. Mortgage refinancing will enable the borrower to replace an existing loan with a new one.
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8. Lower Your Monthly Payments
Plenty of borrowers with a tight monthly budget seek opportunities to lower their monthly expenses. Mortgage refinancing can be one of the ways to reduce monthly costs.
When comparing various loan refinancing options, one is likely to check the mortgage refinance rates today. If the new loans are being offered at a lower interest rate, then the borrower can consider the refinancing option.
Alternatively, borrowers can obtain a mortgage refinancing to get a mortgage with an extended repayment period. The borrower will pay reduced monthly repayments although over a more extended period.
Generally, paying less monthly payments is beneficial when looking for ways to cut on monthly expenditures.
9. Getting Rid of PMI
Most mortgage terms require the borrower to pay at least 20% upfront. Any mortgage advanced to a borrower who cannot make the substantial advance payment is considered riskier.
The lender demands the borrower to pay insurance premiums which are expensive to the borrower. The insurance premiums directly increase the borrower's monthly payments since the premium is included in the fees.
To lower monthly payments, one can consider mortgage refinancing after repaying the loan for some time. The lender will be guaranteed the borrower's ability to repay the loan fully over the agreed period. Without paying the insurance premiums, the borrower, after the loan refinancing, should be making lower monthly payments.
Should You Refinance Your Mortgage Now?
Despite the many benefits of mortgage refinancing, one should not obtain a new loan blindly. It is recommended that borrowers consider their credit score, estimated new interest rates, and the cost of debt for the new loan.
Although there are so many benefits of mortgage refinancing, obtaining a mortgage refinance is only favorable for borrowers with good credit. The successful borrowers likely pay the new loans at lower interest rates. Also, the monthly payments are probably lower than for the previous loans.
On the other hand, some borrowers with poor credit scores find it difficult to get mortgage refinancing offering reduced current mortgage refinance rates.
By considering the above mortgage refinance reasons, one can decide when searching for a mortgage refinancing.
Mainly, homeowners consider mortgage refinancing when looking for ways to save more money. By obtaining a new loan,most borrowers can save more due to reduced monthly payments, lower interest rates, and the reduced loan repayment period.