Refinance allows you to take advantage of a lower interest rate to save money. The term refinance may refer to any act such as assisting an individual in buying a home, a car, a real estate property, et cetera.
Different types of refinances are there such as loans and mortgages. The prefix “re-” in the term refinance actually refers to the idea that you will be in essence taking a new mortgage or loan to replace an existing one.
All over the Web, on TV and on the radio, you can find refinance options, but prior to jumping into a refinance, you need to decide why you are opting for the refinance.
- Do you want to have a shorter loan term?
- Do you want to pull some equity out of your house?
- Do you want to pay off your credit cards or other debt?
- Do you want to have a lower payment?
Many factors are considered depending on whether you choose refinance to lower your monthly payments or refinance to shorten the term of the loan.
Shortening the term saves money paid on interest if you can handle the amount of the monthly payment, and may allow you to pay off your mortgage in full by a point when the additional money would be valuable, such as children going to college, or retirement.
Different ways are there to save money by using refinance.
- You can lower your monthly payment amount by keeping the length of the mortgage the same as it currently is.
- You can shorten the length of your loan by keeping your payment the same.
In order to shorten the term of your loan dramatically, you may even consider increasing your monthly payment, if your financial situation has improved since the original purchase of your home in saving money in the long run on interest payments.
You should ask your mortgage specialist whether or not it would be beneficial for you to refinance at this time or whether it may be more beneficial to wait, once you know the reason for refinance.
Reasons to Finance
Given below are the three reasons to refinance.
Lower Interest Rates
If the current interest rates are lower than when you bought your home, a refinance is a smart financial move. If you can pay less to borrow money, this is a no brainer.
Real Estate Value
All over the United States, home values are moving up very quickly. The bubble may burst, but many people are making most of this to improve on their home or pay of old debts. Profit from your home equity without making a drastic change to your monthly payment – you’ll be glad you did!
Banks today have so many different programs from interest only mortgages, 3 or 5 Year ARM’s and fixed rate mortgages that you are bound to find one that fit your lifestyle and budget.
Nowadays, you can take advantage of different refinance options.
Fixed Rate Mortgage
A fixed rate mortgage will usually be for a term of 15 or 30 years and the interest rate will remain the same for the duration of the loan.
Adjustable Rate Mortgage
An adjustable rate mortgage (ARM) means that after a term – usually of 3 or 5 years, your interest rate can change (usually upwards). A 5-year ARM or a 3-year ARM can be a great choice for you, if you don’t plan to stay in your home for the long term.
Government Subsidized Refinance Loans
Almost 30 million Americans qualify for a VA Loan. With a VA Loan, you can qualify for a VA Streamline Refinance. You may also be able to refinance your home with an FHA Streamline refinance.
Advantages of Refinance
- Refinance mortgages or loans allow you to take new loans for a relatively lower interest rate.
- Low interest rates mean low monthly repayments. And low monthly repayments mean bigger savings for you. Of course, this only works if, and only if, the rates are low. If the rates are high, refinance is not advisable.
- Refinance will let you to change loan terms from a lone one to something shorter. You can pay off your loan amount much sooner with a shorter loan term, thus allowing you to save more on your overall interest payments.
- Besides bigger savings on your monthly bills, a refinance mortgage or loan provides you greater loan satisfaction. For example, if you find that the terms of your current loan are unsatisfactory, you can switch to another lender with a refinance loan.
- You can use the money you get from your refinance loan to pay off your old loan. In addition to that, refinance gives you the option to change your lending company whose services or programs make you unhappy or unsatisfied.
- Refinance is also a good way to consolidate your monthly bills.
- Don’t you just find it such a complete headache to receive all sorts of bills every month? Bills, which are very confusing and very time-consuming to sort?
You can get rid of this problem with a mortgage refinance. Getting a second loan will allow you to consolidate all your debts into one single monthly bill.
Debt consolidation is especially beneficial which aside from lessening the hassle you’d have to go through, it also reduces the possibility of a bill forgotten or a debt going unpaid.