Mortgage refinancing refers to paying off an existing mortgage with a new loan. The new loan may have different terms, such as a different interest rate or maturity date.
It's no secret that mortgage interest rates are at an all-time low. In fact, according to Freddie Mac, the average 30-year fixed-rate mortgage was just 3.56% in February 2019, the average 15-year fixed-rate mortgage was 2.62 %, 5-year Treasury-indexed hybrid adjustable-rate mortgage was 2.57%. If you're like many homeowners there, you may be wondering if now is the time to refinance your mortgage. While refinancing can be a great way to save money on your monthly payments, it's essential to weigh the pros and cons before deciding.
If someone is thinking of mortgage refinance, they should do so sooner rather than later. Interest rates are still low but are predicted to rise in the next few years. So if someone waits too long, they may not get a reasonable interest rate and could end up paying more in the long run.
Mortgage refinance can be a great way to save money and lock in a low-interest rate.
Here are the top five reasons to refinance your mortgage in 2022:
1. Lower your mortgage interest rate
Mortgage refinance rates have decreased considerably in the last decade, as the economy has matured and entered a slower pace of growth, which implies that the economy is developing and will continue to keep rates low for some time.
The longer you pay off your mortgage, the more money you save. The typical interest rate on a 30-year fixed-rate mortgage was 4 percent in late 2018. That means that if you can stretch out your payments or make larger ones for a year or two, you'll have to spend less each month and will owe less in interest.
Refinancing your mortgage to a lower rate might save you money, so you'll have more emergency cash if you need it. Keep in mind that rates vary depending on the loan product and lender. Your present lender might give you a lower interest rate if you stay with them.
2. Consolidate debt
Cash-out has grown in popularity because of the low-interest rates available on mortgage refinance rates. A cash-out refinance you to use the equity in your home to reduce debt by consolidating it. The amount of money your mortgage balance will grow depends on how much equity you want to drawdown.
There are several things to consider before taking out a cash-out refinance. Do you know how much equity you have in your home? On an FHA loan, mortgage refinance can help you cancel mortgage insurance, but it may also force you to pay mortgage insurance if you merge debt and take out over 20% of the home's equity.
It's also critical to have a plan for reducing your overall debt in the future, such as credit cards and automobile loans. Zambon says he tries to understand his client's objectives and needs to assist them in obtaining the most acceptable solution for working with his customers.
3. Take advantage of a shorter-term mortgage
If you don't plan to remain in your home for over five years, you might refinance a shorter-term mortgage. Shorter-term mortgages typically have lower mortgage interest rates than 30-year fixed-rate mortgages.
Keep in mind that when you refinance to a shorter-term mortgage, you'll pay more interest over the life of the loan. But if you plan on moving within five years, a shorter-term mortgage could be a good option for you.
"A lot of homeowners are taking advantage of the low mortgage interest rates and refinancing into 15-year mortgages," says Erin Lantz, vice president of mortgages at Zillow. "This is a great way to pay off your home sooner and save money on interest."
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4. Get cash to remodel your home
Homeowners can also use a cash-out refinance to get money for renovations or other expenses. For example, if you need to replace the roof on your home, you could take out a cash-out refinance and use the proceeds from the loan to pay for the new roof.
Remember that you'll need to have enough equity in your home to qualify for a cash-out refinance. And, you should only use the money from the loan for necessary expenses, such as home repairs or improvements.
"If you're doing some renovations and don't have the funds on hand, a cash-out can be a good option," Lantz says.
You can also use a cash-out refinance to pay for college tuition or other enormous expenses. However, you should only do this if you're comfortable with the increased mortgage payments.
"A cash-out refinance is a way to borrow against your home's equity to get cash for whatever you need," Zambon says. "It's a great way to merge debt or take care of other enormous expenses."
Keep in mind that you should only refinance your mortgage if it makes financial sense to you. Compare interest rates and fees from different lenders before deciding on a refinancing option. And be sure to consult with a financial advisor to make sure you're making the most intelligent decision for your financial future.
5. Lock in a low-interest rate
If you're comfortable with your current mortgage rates but worried that interest rates might go up in the future, you can refinance to lock in a low-interest rate. That could be a good option if you don't plan on moving within the next five years.
"Many people are refinancing now because they're afraid that interest rates are going to go up in the future," Lantz says. "If you have a good interest rate, it might make sense to lock it in."
However, keep in mind that if interest rates go down after your refinance, you won't be able to take advantage of the lower rate. You'll also have to pay closing costs and fees associated with the refinance.
"It's important to weigh the pros and cons of refinancing before you decide," Zambon says. "Make sure you understand all the terms and conditions of the loan."
Mortgage refinance can be a great way to save money on interest or get cash for home repairs. But be sure to consult with a financial advisor before you decide.
If you are like many people, you may be wondering if mortgage refinance is a good idea in 2022. In this blog post, we have outlined the top 5 reasons to refinance your mortgage next year. Whether you are looking to get a low-interest rate, consolidate debt, or shorten the term of your mortgage, there are many benefits to refinancing in 2022. We encourage you to check out Lendstart's lineup of service providers and see if mortgage refinance is right for you. Thanks for reading!