By financen | September 9, 2019 - 7:26 pm - Posted in Mortgage, Refinancing, Uncategorized

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.

This entry was posted on Monday, September 9th, 2019 at 7:26 pm and is filed under Mortgage, Refinancing, Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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