Having a mortgage is one of the biggest bills that people have every month. Most of the time, it costs more than rent and there are more consequences if you start missing payments. The good news is that you might be able to refinance and make things a little bit easier. Before you decide to go ahead and start the process, keep reading to see 10 benefits that you can experience if you do refinance your mortgage loan.
1. Better Mortgage Rates
The first benefit you could get from refinancing are better mortgage rates. Many times, the rates will have gone down since you first got your loan. If you apply and get approved for a refinance, your new loan will have the lower rates. Depending on the market, the actual rate may have gone down quite a bit, which can end up saving you quite a bit of money every month. The best thing to do is look at your current loan and see what your rate is, then compare it to the current rates on the market.
2. Lower Monthly Payments
You can also expect to have lower payments. There are a few reasons for this. The first is because of the lower mortgage rates. Since the actual rate will be lower, that amount will be used to calculate the new payment. The other reason is because you usually have the choice to extend your loan. For example, if you started with a 30 year loan and you’ve been paying for 15 years, you can possibly have the option to extend the loan back to 30 or less and that will result in your payment being lower.
3. More Certain Terms
Depending on the condition of the market when you applied for your mortgage, there’s a chance that you were stuck with a loan that changes every month. When you refinance, there’s a chance you can get a loan that doesn’t change. This means you’ll know your exact payment every month and you won’t have to do any guesswork. The payment that you’re shown and told will be exactly how much you have to pay, unless there are late fees or something similar.
4. Shorter Term
In the same way that you can extend your loan to get lower payments, you can also choose to reduce the length of the term. This is great for those that have started a new job or have started earning a larger amount every month. By having a loan that requires larger payments, you’ll end up paying it off in a shorter amount of time. Depending on how much you can afford, this time could be cut down by several years.
5. Able to Borrow Money
While it all depends on how much equity is in your home, refinancing could help you get some cash back. While it will vary from person to person, you might be able to get enough to do home repairs, like new roofing or flooring. You could also use it to pay off other debts if you need to. Being able to update your home will make the value much more and you’ll get a higher amount if you choose to sell down the road.
6. Debt Consolidation
If you have multiple loans with the same company, refinancing could make it so all of these loans are bundled into one. This has a few benefits. For starters, you’ll only have to worry about 1 payment every month instead of having to remember multiple ones. There’s also the chance that you’ll be making lower payments from before for everything if the rates are lower. Depending on how many loans you actually have, this could save you quite a bit of money in the long run.
7. Faster Equity Building
Since home equity is basically the amount of your home that you actually own, it increases over time. The two main ways it increases is by the property value increasing and by you paying off more of your loan. If you refinance to a loan that lets you pay off your mortgage faster, the equity in your home will increase much quicker. Not only can you use your home’s equity when you move, but you could also tap into it if an emergency arises!
8. Changes in Rates from Credit Score
Even if the mortgage rates are the same as they were when you applied for your loan, there’s a chance that you can get a lower rate if your credit score has increased. This is especially true if you started out with bad credit and have worked on it to move to excellent credit. It might seem like it’s not worth the hassle, but you can end up saving hundreds of dollars every month or year! Make sure you look at the rates before trying, though!
9. Changing Loan Type
Many people have loans that change over time. If you’re able to refinance, there’s a possibility that you can change your loan type to one that’s more predictable. Not only will you know your exact payment every month, but there’s also the chance that the payment will be lower. You might also find that the rates are lower because they aren’t always changing. This can help those that need stability or those that only have a certain amount to work with every month.
10. No Mortgage Insurance
The final benefit of refinancing is that you can save money by getting a loan that doesn’t have mortgage insurance. Many times, the loans that have this type of insurance built in are going to be a lot more expensive. You can actually get much better and lower rates by paying for this insurance through an actual insurance agency instead of your mortgage lender!
As you can see, there are some pretty great benefits that come from refinancing your mortgage. Remember, though, you have to meet certain criteria and you might not automatically qualify. If you do, you’ll be able to rest easy knowing that you’re going to be getting these benefits!