There are some cases when something is giving you a better option
to pay off an existing loan and replace it with a new one. This process
is what we call as "refinancing" a mortgage.
There are times that
refinancing your mortgage is actually better but what is very vital for
you as a homeowner is to have a clear grasp of all financial
objectives. More importantly, you have to keep these objectives in mind
so that you will be able to acquire the loan that's most appropriate for
you. This article will look at a few of the major reasons as to why
people decide to refinance their mortgages. But of course, the decision
on which is best based on your financial situation is up to you, as a
homeowner.
Goals of Refinancing:
·
To create equity faster by securing a lower interest rate - one of the
top reasons of refinancing is to lower your existing loan's interest
rate. Aside from saving money, reducing your interest rate also
increases the rate at which you build equity in your home. Furthermore,
it can also decrease the burden you bear for your monthly payment.
· To adjust the length of your mortgage - when adjusting your mortgage, you have to options:
o Increase the term:
Reducing the amount that you pay each month will increase your
mortgage's term. However, you also have to consider the fact that the
total amount you end up paying will also increase because of the
interests per month.
o Decrease the term: Mortgages in short-term basis generally have lower interest rates. Moreover, you pay off your loan sooner than usual.
·
To convert from ARM to Fixed-rate mortgage or vise-versa -
having an adjustable-rate mortgage or ARM will change your monthly
payment as the interest rate changes. With this type of payment, your
payment can increase or decrease.
On the other hand, there are
some who find their selves uncomfortable with the possibility that their
monthly payments could rise. In this case, it is better to switch to
fixed-rate mortgage because you will have a steady rate and thus, have a
peace of mind. Fixed-rate mortgage is also a great idea if you think
that the interest rate will increase in the future.
Conclusion:
Refinancing
can be an excellent move if it helps you create more equity faster,
shortens the term of loan, or decreases your mortgage payment. It can
also be a useful tool when making your debt under control as long as you
use it carefully. Before refinancing, you need to look at your
financial situation and ask yourself how long you plan to continue
living the house and know how much money you will save by refinancing.
