Traditionally, people have an option to pay off their existing loan and replace it with a new one. This process is what we call as "refinancing" a mortgage. However, what's very important for homeowners is to have a clear understanding of what your financial objectives are. More importantly, you have to keep these objectives in mind so that you will be able to acquire the loan that's most appropriate for you. This article will look at a few of the major reasons as to why people decide to refinance their mortgages.
What are the Purposes of Refinancing?
A. To safeguard a lower interest rate to create wealth faster - one of the main roles of refinancing is to decrease your existing loan's interest rate, as well as decrease the burden you face for your monthly payment. Aside from saving cash, reducing your interest rate also increases the rate at which you build equity in your home.
B. Adjusting your mortgage's length - you have two options when you want to adjust your mortgage:
1. Increase the term: you can reduce the amount that you pay every month but if it will increase your mortgage's term as well as the total amount you end up paying because of the interests you incur per month
2. Reduce the term: generally, a mortgage in short-term basis signifies that you pay off your loan sooner than usual and you will face lower interest rates as you're paying higher amounts per month
C. Changing from ARM to Fixed Rate Mortgage - with adjustable-rate mortgage or ARM, your payment has no "fixed" rate because it can increase or decrease in any period of payment. With this type of payment, your monthly payment will change as the interest rate changes.
On the other hand, there are some who find their selves uncomfortable with the possibility that their monthly payments could rise. In this case, it is better to switch to fixed-rate mortgage because you will have a steady rate and therefore, you become confident. Fixed-rate mortgage is also a great idea if you think that the interest rate will increase in the future.
If it helps you create more equity faster, shortens the term of loan, or decreases your mortgage payment refinancing can be an excellent move. Moreover, it can also be a great tool when you want to make your debt under control as long as you use it carefully. Before refinancing, you need to look at your financial situation and ask yourself how long you plan to continue living the house and know how much money you will save by refinancing.
What are the Purposes of Refinancing?
A. To safeguard a lower interest rate to create wealth faster - one of the main roles of refinancing is to decrease your existing loan's interest rate, as well as decrease the burden you face for your monthly payment. Aside from saving cash, reducing your interest rate also increases the rate at which you build equity in your home.
B. Adjusting your mortgage's length - you have two options when you want to adjust your mortgage:
1. Increase the term: you can reduce the amount that you pay every month but if it will increase your mortgage's term as well as the total amount you end up paying because of the interests you incur per month
2. Reduce the term: generally, a mortgage in short-term basis signifies that you pay off your loan sooner than usual and you will face lower interest rates as you're paying higher amounts per month
C. Changing from ARM to Fixed Rate Mortgage - with adjustable-rate mortgage or ARM, your payment has no "fixed" rate because it can increase or decrease in any period of payment. With this type of payment, your monthly payment will change as the interest rate changes.
On the other hand, there are some who find their selves uncomfortable with the possibility that their monthly payments could rise. In this case, it is better to switch to fixed-rate mortgage because you will have a steady rate and therefore, you become confident. Fixed-rate mortgage is also a great idea if you think that the interest rate will increase in the future.
If it helps you create more equity faster, shortens the term of loan, or decreases your mortgage payment refinancing can be an excellent move. Moreover, it can also be a great tool when you want to make your debt under control as long as you use it carefully. Before refinancing, you need to look at your financial situation and ask yourself how long you plan to continue living the house and know how much money you will save by refinancing.
About the Author:
Homeowners who suffer with their house loans find an effective solution through refinancing a mortgage. Refinancing allows them to save money, decrease the term, and lower the interest they pay. For more on this topic, visit the links above.
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