For most consumers, servicing their home mortgage is their biggest expense. That is why with interest rates at the lower end of the average, borrowers should do a home refinance to a lower mortgage interest rate in order to save money. So an interesting question is, should I refinance my mortgage?
However, that is not the only reason to do a home mortgage refinance. Consumers can obtain a lot more financial freedom and flexibility if they use their refinanced mortgage loan carefully.
Saving on mortgage payments today can help borrowers have the opportunity to use that money towards other expenses, increase savings, or make more payments on the mortgage principal. For those considering a mortgage refinance, a credit score of at least 650 important and also your current mortgage loan should be in good standing. For the very best refinancing interest rates, a credit score of over 700 is required.
Lower Monthly Mortgage Payments
No matter what your financial position is, everyone can use the extra money in their life. Refinancing your mortgage at today’s rates is a wise financial decision. Mortgage refinancing will allow borrowers to save money on their monthly mortgage payments since interest will be at a lower rate. Shopping around for refinance deals can lead to an even better deal. Some mortgage refinancings do not have prepayment penalties and with the others, they don’t win friends with their practices.
That means your mortgage can be paid with the same monthly payment and principal will be paid off faster. On the other hand, for those that want to make the least amount of monthly payments possible, consider a longer-term mortgage but keep in mind you will pay more interest over the life of the loan. It is always best to plan ahead and to budget how much you can afford to pay each month over the long term and veterans can have even better deals.
Faster Mortgage Loan Pay Off
Your home mortgage is useful for financing large purchases that would otherwise be out of reach. There is flexibility in the way a homeowner wants to repay their loan. Those that want to pay off the home faster can opt for a shorter term mortgage. For instance, the most common mortgage loans are for 15 and 30 years. Obviously, the 15-year loan will have a higher monthly payment but borrowers can pay off their loan in total twice as fast. With the current low-interest rates, having a shorter term loan such as the one for 15 years is much more affordable than it has been in a long time. Those that choose the shorter length mortgage will realize significant savings through paying less interest and more principal towards their mortgage. The drawback is that there will be fewer mortgage deductions when it comes to paying income tax.
Less Debt Means More Financial Flexibility
Another good reason to refinance your mortgage is to use the flexibility to pay off credit card debt. With so many of us relying on credit card purchases to meet everyday spending needs, this will make a lot of sense. Paying off your mortgage faster allows homeowners to draw on their home equity to pay off any high-interest credit cards. This has a two-fold benefit. First, credit cards always have a much higher interest rate. Second, mortgage interest is tax deductible while credit card interest is not. While it is never good to have too much debt, trading high-interest rate debt for low-interest rate ones is always a sound financial decision.
Cash Can Be Taken Out
Sometimes having paid off a significant part of your mortgage means having an asset to draw cash against. In this case, it is possible to use your home equity for such purposes. Many people increase their mortgage to get cash to spend. This is called a reverse mortgage. There are fees involved to do this much like other mortgage products available. It is common for people to use a reverse mortgage for home improvements.
There are many advantages and good reasons for homeowners to refinance their home mortgage. Refinancing your home loan provides financial flexibility and interest payment savings that will go a long way towards achieving your future goals. Not only can borrowers pay off their home faster, they can also use the added savings towards other debt or cash for a rainy day. For those that are considering mortgage refinancing be sure to plan out exactly what you want to achieve. Get additional mortgage guidance from loan officers in order to make the right decision for your personal situation.