The underlying aim of mortgages is to help borrowers own their desired homes. One smart innovation in the mortgage market is the opportunity of refinancing. Refinance actually help you the borrower obtain a new mortgage loan with better terms. If you have right reasons and if you are the right candidate, you may become eligible for a mortgage refinance. With this you may be eligible to reduce your monthly payment amount, may have to pay less interest or you may be able to convert your 30-year mortgage loan to a 15-year mortgage loan. Though it sounds like that there are pretty good incentives for refinance but it is to be noted that refinancing also comes at a price. In fact it takes a lot of effort to become eligible for refinancing. So before applying for refinancing, you need to compare the costs and benefits associated with refinancing.
Here we discuss about the reasons behind opting for refinancing.
Reduces the rate of interest
One common reason behind opting for refinancing is that it reduces the rate of interest. Reduction in the rate of interest lowers down the monthly payment amount. This in turn helps you save some money on a regular basis. However, not all the homeowners are taking advantage of refinancing. According to the data provided by some reliable sources, almost 58% of the homeowners who have taken mortgages pay mortgage rate which is higher than the current mortgage rate prevailing in the market place. This makes great sense to opt for mortgage refinancing.
Switching to FRM
You may not like the unpredictability associated with an adjustable rate mortgage. Instead, you may be a risk averse and may want to switch to the safety of a fixed rate mortgage. In this case, you can convert your adjustable rate mortgage into a fixed rate mortgage through refinancing.
Got unexpected cash
Sometimes it may be the case that you have got unexpected cash hike in your salary or you have got prize money. In such situations, refinancing would be a good option. Since you are able to make more monthly payments, it would be wise to increase your monthly payment and acquire complete equity in the home much earlier. You can do so through mortgage refinancing. In that case, you may be willing to convert your 30-year home mortgage loan into a 15-year mortgage loan. This reduces the term of the loan but at the cost of higher monthly payment. But you achieve the ownership of the home much earlier.
Consolidate multiple loans
It may be the case that you have taken out multiple mortgage loans. In case of multiple mortgage loans, you may have to bother about making multiple mortgage payments. In such case, one good option available for you would be to consolidate the multiple mortgage loans into a single one. This actually reduces the monthly payment that you have to make.
These are the prime reasons behind opting for mortgage refinancing. Apart from these, there could be many other reasons too.