Are you looking to lower your mortgage payments? Maybe they’re just too high for you at this point in time or maybe you’re simply looking for more flexibility in your monthly budget. 

Either way, you’ll be happy to know that this can be done, and the way to go about it is refinancing. 

Now, there are several paths you can take to make this happen, and you should also keep some important things in mind before you decide to initiate the process. 

Don’t worry, we’ll cover the most important of them in this text and prepare you well. Let’s get going!

Refinancing because the interest rates are lower

It’s not uncommon for people to refinance their mortgage because they see that the interest rates have become lower. It certainly seems logical – why not take the chance to pay lower monthly instalments if you can?

Just remember that if you’re changing lenders, you may need legal help to complete the process, and Optimal Solicitors from Manchester specialize in that.

However, there is a catch. If you opt for this, you can expect to have to pay the so-called refinance closing costs. And this can be a fairly significant amount, too.

So, you have to calculate how much you stand to save if with a lower rate and compare that to the total refinancing costs that you’d have to pay. It is generally considered worth it if you can get the rate down by one per cent, but that depends on your situation, of course.

Refinancing to gain more time to repay the mortgage

Another popular solution when it comes to paying the mortgage is refinancing in such a way that you extend the period you have for that. Essentially, you will be moving the deadline down the road.

For example, if you have a 30-year loan on your hand, a part of which you’ve already paid off, you can transform the remainder into a completely new 30-year loan. That way, you get your mortgage payments down.

However, the main thing to consider when making this move is the interest that will accrue this way. Yes, you will breathe much more easily every month but will also end up paying more in total. You have to ask yourself is that really worth it.

Naturally, if you simply can’t make the payments anymore, this move can be a lifesaver that helps you get back on your feet.

Getting rid of insurance

Apart from helping you directly with lower payments, refinancing can also help you in another way. If you refinance and turn your mortgage into a standard loan, you may be able to be rid of mortgage insurance, which will bring your payment down.

Just remember that if you were sold payment protection insurance in a dishonest way, there are legal experts that can help you get compensated for that.

The fee that applies to insurance can be anywhere between approximately 0.5% and 1% on an annual level, but this will depend on a variety of factors.

So, you have quite a few options when it comes to refinancing your mortgage. Analyse them all before making a decision, preferably with expert help by your side.

In 2018, the national average price for homes reached an average of $218,000. Luckily, homeowners can take out a mortgage to ease their burden. However, the loan is no longer the best choice for their financial condition.

Refinancing a mortgage is an option most home-buyers choose. But mortgage refinancing can go both ways. It can either help a person save money or cost them more. 

It’s important to understand what mortgage refinancing is in order to figure out the right time to do it.

What is Mortgage Refinancing?

In an unstable economy with possible high-interest rates, it can be quite difficult for homeowners to pay off their debt. People who find themselves in this situation may consider refinancing their mortgage.

Basically, homeowners who refinance mortgage are replacing their original loan with a new one. The new loan is ideally a better one. This will allow them to have better interest terms and rates.

The new mortgage isn’t made to throw out the old one. Homeowners who refinance their mortgage can use the new loan to pay off the original mortgage.

But this isn’t the only reason why people choose to refinance. People do this to lower their interest rates, reduce monthly payments, or change mortgage companies.

Other borrowers refinance mortgage when they have equity in their home. Equity is the difference in the value of the house and the amount owed to the mortgage company. 

When Should You Refinance Mortgages?

Refinancing mortgages can be a slippery slope if one is ignorant about the topic. With the proper knowledge, refinancing can bring a lot of benefits to the homeowner.

But when should one refinance?

1. Refinance mortgages when interest rates are low

This is one of the top reasons for homeowners to refinance. A difference of 2% in savings is enough reason to refinance.

Reducing the interest rate of the mortgage does not only help with saving money. It lowers the monthly payment and increases the rate of building equity for the house.

• Refinance mortgages to shorten the duration of the loan

Homeowners can refinance their mortgage to shorten the loan’s term. This will significantly lessen the interest that they have to pay.

• Refinance mortgages to switch to a fixed-rate or adjustable-rate mortgage

Usually, adjustable-rate mortgages start with a lower interest rate compared to fixed-rate mortgages. When periodic adjustments begin for adjustable-rate mortgages, interest rates start increasing.   

Once this occurs, homeowners can switch to a fixed-rate mortgage. Converting into a fixed-rate mortgage would eliminate concerns regarding future interest hikes.

Converting from a fixed-rate to an adjustable-rate mortgage is also advantageous when interest rates fall. This is great for homeowners who don’t plan on keeping the house for a long time. When interest rates fall, they can save money without worrying about the future.

The Bottom Line

Refinancing can be the perfect financial move for every homeowner. It can lower monthly payments, shorten loans, and even increase equity. When done carefully, it can help bring debt under control. It’s a valuable tool for financial responsibility.

Refinancing involves taking out a new home loan to pay off an existing one. Refinancing is done primarily for two reasons: to save money through a lower interest rate, or to exchange a property’s equity for cash.

Say you have an adjustable rate mortgage and mortgage rates are beginning to rise. Refinancing (ideally to a fixed rate) would be the most sensible course of action as this would allow the borrower to avoid the high monthly payments associated with higher interest rates, as well as allow the borrower to move to a lower-risk loan. This can be a good idea regardless of what kind of mortgage you currently have

However, there’s more to think about than just interest rates when talking about refinancing. You could choose to refinance to decrease the term of your mortgage so that you can pay it off sooner. This is especially a good idea if your financial situation changes to allow you to afford higher monthly payments and can ultimately amount to thousands of dollars in interest savings.

Other homeowners choose to refinance not because they are overly concerned with saving money, but are instead looking for a “cash-out” type of mortgage where they can exchange some of the equity they hold in their home for cash. This is usually done by borrowers looking to a solution to pay off large debts, fund home improvement projects, or pay for other major expenses.

While refinancing very often seems like a great idea, it is not right for everyone. If you are considering refinancing, be sure that you explore your options thoroughly and consult with a financial adviser before making your decision.