Refinancing a home can be a great way to save money, but many people have questions about when or if refinancing is right for them. While most financial experts recommend refinancing to lower interest rates, reduce the length of the loan, or lower monthly payments, there are other less common reasons to consider refinancing. We’ll explain all this below.
Lower Interest Rates
Since the pandemic, interest rates have been on a rollercoaster journey. In the current economy, it is unlikely that you will see a sharp decline in interest rates in 2023. With that said, there are still many other viable reasons to consider refinancing your home.
Pay Off High-Interest Debts
Credit card debt can add up fast—especially with the high interest rates they typically have. By refinancing your mortgage and taking out additional cash from your home's equity, you can pay off your credit card balances and consolidate your debts into a single monthly payment at a lower interest rate. This can save you a significant amount of money over time.
Eliminate the Added Cost of Private Mortgage Insurance (PMI)
Private Mortgage Insurance (PMI) can be a burdensome expense for homeowners, adding an extra cost to the total mortgage.
The good news is that you can eliminate this expense if you qualify for an FHA loan. That's because FHA loans are backed by the federal government and have different lending criteria than conventional loans, which do require PMI. By choosing an FHA loan, you can avoid the added cost of PMI and potentially save thousands of dollars over time.
Increase Loan Term to Reduce Monthly Payments
Refinancing to lengthen your loan term can be a good option if you're struggling to keep up with your monthly mortgage payments. By extending the loan term, you can reduce your monthly payment amount, making it more manageable for your budget. This can help you avoid missing payments and potentially falling behind on your mortgage.
However, it's important to remember that extending your loan term means you will pay more in interest charges over the life of the loan.
Free Up Money for Home Improvement Projects
Home renovations can be expensive, which is why many homeowners turn to cash-out refinancing to access their home's equity and cover the costs.
However, it's essential to consider whether refinancing your home is right for you. For example, if you've recently bought your home, plan to move soon, or intend to use the funds for unnecessary expenses, it may not be prudent to refinance your mortgage.
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