5 Examples of When Refinancing Your Mortgage Actually Makes Financial Sense

When thinking about refinancing your home, you might be tempted to view it as an extremely complex and cumbersome task that would require you to go through numerous processes. However, mortgage refinancing is quite a widespread practice that, under certain conditions, may result in a lot of money saved. Moreover, mortgage refinancing in San Diego will allow you to reach some personal financial goals much quicker than expected. Therefore, it may be useful to consider several typical cases in which you should seriously think about getting a new loan.

1. Lower Interest Rate

First and foremost, people usually resort to refinancing when they manage to get themselves a loan with a significantly lower interest rate. Although it may seem like an insignificant change, its impact is quite noticeable when you talk about a thirty-year mortgage loan. The amount of money you could potentially save from the one-percent difference may exceed tens of thousands of dollars. The only requirement is that you should be sure that your monthly payment would be reduced enough to make up for the cost of the new loan.

2. Shorten the Loan Term

Secondly, you may find it necessary to shorten your loan term. For instance, you may want to become a full owner of your house within a much shorter period than planned initially. In such case, it is possible to refinance your thirty-year mortgage loan into a fifteen-year one. While your monthly payment may become somewhat larger due to a shortened loan term, you will end up paying considerably less interest. Therefore, if you managed to boost your salary during the past couple of years, this option may suit you perfectly.

3. Access Equity

Another reason why you might need a new mortgage loan is to access the equity that you built in your property. Thus, you might consider applying for a cash-out refinancing loan to fund any major project, including home improvement or education. Besides, you may be able to reduce your debt burden in case your current mortgage loan had a very attractive introductory interest rate that expired recently.

4. Switch to a Fixed Rate

Furthermore, it may be advisable to switch to a fixed-rate mortgage loan in case you had previously applied for an adjustable-rate mortgage loan. During the introductory period, you might enjoy extremely favorable terms. Afterward, however, your interest rate might fluctuate dramatically depending on the current economic state. Hence, if interest rates are rising, you might end up being unable to predict your monthly payment accurately. On the other hand, with a fixed-rate loan, you will be paying the same amount each month without having to worry about anything.

5. New Loan

Finally, you might need a new loan if you still have private mortgage insurance premiums despite owning your house for many years. As you already know, people who make a deposit of less than twenty percent have to pay extra monthly fees to their lenders. Since such insurance does not provide any protection for homeowners, you should try eliminating it once you manage to build at least twenty percent of your home’s equity.

All in all, in order to see whether it makes sense to refinance your home loan, you should analyze your current interest rate, calculate the equity built in your home, and think about your long-term financial goals. If one of these five cases applies to you, contact a broker today who will provide tailored advice for your situation!