If you are looking to reduce your current monthly mortgage rate, convert your home equity into solid cash, switch your payment method to a fixed rate loan and reduce interest rate on your mortgage payment; then refinancing may be the best option. Before you make the conscious decision to refinance your mortgage, it is very important you understand how the whole process works. Evaluating all the benefits and disadvantages of refinancing will help you make all the right decisions. You will be very surprised by the number of documents needed on some options; although some of them may not need so much.
What is refinancing
Basically, refinancing involves the process of replacing your existing mortgage loans with another loan. Most people refinance mortgage so they can reduce all the monthly payment, lower their interest rates or even change their mortgage payment from adjustable to fixed rate mortgage payment. Other people need the money for financial needs like renovations an d to pay off other unrelated debts. They do this by leveraging the equity in their property to get the money for refinancing.
Regardless of what you want to achieve, the process will work like your mortgage application. It will take you a lot of time to do some research on the best loan options. You will need all your financial documents and also submit an application before you get an approval.
Benefits and risks of refinancing
Some of the potential benefits that could come with refinancing your mortgage include lowering your monthly payment on the mortgage loan. With a refinance, you can save up to 200 dollars on the mortgage payment. These lowered monthly payments give you the chance to clear your other debts, increase the savings and make other investments. Refinancing lets you switch to a fixed rate loan payment from an adjustable one. This means that you won’t be paying too much on the interest dues to the financial influx in the housing market.
You can also pay off the loan sooner than you would have. Another advantage is getting rid of the private insurance on your mortgage. If you have more than enough property appreciation, you will not be required to pay the private insurance which will pave way for savings and other investments. Reducing the length needed to pay your mortgage is another benefit you will enjoy when your refinance the loan. You can reduce a 30 year mortgage by far, make the payments sooner and also reduce the interest rates on the loan. An outstanding benefit of refinancing is you can use the loan to consolidate the mortgage; this will automatically reduce all the terms of the loan. you will pay less interest in a reduced amount of time.
What are some of the risks you face when you refinance your home?
Refinancing may not always be your cup of tea. As much as it has benefits, the risks may also weight you down financially. Refinancing brings back the amortization process which may increase the period of loan payment. There are extra and unplanned fees that come with refinancing, the will chip into your savings and it may not be worth it in the end