![Refinancing](/build/articles_onlinesearches_today/images/articles/finance/Refinancing.jpg)
Lower rates – The main reason for someone refinancing their mortgage is to lower their monthly payments. Say for instance you have a 25-year mortgage worth $200,000 with an interest rate of 7.8%. This means you’re paying around $1500 every month for 25 years. However, the mortgage firm is able to offer new rates 2.8%. This means that your monthly payments will drop down to $927 if you remortgaged back up to $200,000.
Quicker process – A lot of offers to refinance your mortgage can help you to pay off your mortgage quicker. If you come into a new job that pays a lot more money than your last, you may want to refinance your mortgage in order to get a shorter payment period. This can really help you plan to move forward after your mortgage.
Adjustable to fixed-rate – Another reason would be if your mortgage firm is offering to change your adjustable rate mortgage to a fixed rate. What does that mean? Well, let’s take the example used in the first instance. You had been paying $1500 since you were on a 7.8% interest rate. But 3 years ago, your firm upped that rate to 9.8%. This meant that you were paying substantially more than before. However, now they are offering you’re a rate of 6.8% fixed where it is. This means that not only are you now paying less than you were initially, but you are also fixed at that rate. This means that your mortgage lenders can’t raise their interest rate anymore for the period of the mortgage as well. This can be an enticing prospect to those that want more stability in their monthly payments in order to plan for the future.
And the costs?
You should never assume that any business is offering you something for free. Usually, you will pay fees to the lender in order to oversee the changeover, as well as fees for filings, credit checks, and appraisals.
A lot of the time these fees will be worked into the interest rate you are being given.
This means that this offer really needs your time and focus to consider whether or not it will benefit you. Take some time to really read through the new offer in conjunction with your current financial standing. The main thing that is important to you is that after all the moving and shaking you will come out on top. If you can’t see for sure if you will, then maybe it’s best to leave it.
When is the best time to refinance?
The best time to refinance is always, ultimately when interest rates are low. This is when you will see the most amount of benefits from your move.
Another time to refinance is if you have improved your credit score. Over time you may come to have a better credit score than you had when you took out the mortgage, this enables your lender to offer you better interest rates as they see you as a more trustworthy individual.
A great time to refinance your mortgage is when you need extra money. If you are looking for a little extra cash to make a renovation for your house or buy a new car. You can use the extra money offered by the refinancing of the mortgage to make improvements to your house or your life.
Just remember
Don’t go for the refinancing move if it does not benefit you. Even if you could free up $30,000 for that renovation, if you are going to force yourself into a situation where you are paying higher rates on a monthly basis, you need to judge whether it’s the best idea. You may be very good at meeting your monthly payments at a certain level, but if your interest rate is going to be higher, you may not be able to meet the demands as easily.
Always work through the offer independently, the mortgage lender is always going to tell you that it will benefit you, but you need to find that out for yourself.
Disclaimer: Our service is not intended to be, nor should it be construed as financial advice. We help our readers make informed decisions via impartial information and guides. Where appropriate, we may introduce partner companies who can provide services relating to financial products.