How Much Can You Save If You Refinance Your Mortgage? The Answer May Surprise You
If you own a mortgage, you have devoted to paying your lender a specific interest rate or even a variable interest rate for a stipulated period. Basically, the only convenient way to lower the specified period or rate is through refinancing.
Generally, it’s possible to save if you refinance as the reduced interest rates essentially mean trading the high-interest mortgage for a cheaply affordable. For instance, refinancing can allow you to pay off the mortgage in less than 20 years compared to the 30 years, especially when you get a substantial raise at the workplace.
Is it Possible to save if you refinance a Mortgage? – Here are the Honest Truths!
Doesn’t it sound amazing? It is, in some cases. However, in other scenarios, you may fail to save if you refinance. In such cases, you end up spending more than budgeted. All in all, here are the top financial benefits of refinancing your mortgage.
Low Monthly Payments
First, one of the main reasons why people opt to refinance their mortgage is to enjoy a low monthly payment. So, before refinancing, it is advisable to look at the most recent mortgage rates to ensure that they’re smaller than your current rates. Indeed, a minimal difference of one or two percent can make a substantial impact on your financial endeavors.
Besides, you can reduce your monthly mortgage payments by prolonging the current payoff date past the current set date. With this, you’ll need to pay less in principle every month.
Stabilizing the Loan Payments
It would be wise to consider refinancing to a fixed mortgage rate, especially if you presently have a modifiable mortgage rate and wish for more predictable loan payments every month. Based on the amount of risk you intend to take plus your current and future financial situation, moving to a fixed mortgage rate from a modifiable mortgage rate could turn out to be the best switch for you.
Build the Equity Fast
While it sounds quite irrational, refinancing to a loan that comes with more extended payments and shorter payment periods can turn out to be an incredible idea for most homeowners. Basically, the main reason for this aspect is that moving to a fifteen-year mortgage from a thirty-year-mortgage gives you the ability to build up your property’s equity faster. In the process, with lower rates, you’ll end up saving money on interests.
Benefit from Improved Credit Score
While it’s not enjoyable to pay a mortgage each month, you’ll truly love the way it boosts your credit score every time you make timely payments. Honestly speaking, a good credit score makes sure that you are in a good position refinance the mortgage to a much lower interest rate.
With the option of selecting the cash-out refinance, it will be incredibly easy for your credit score to become better and better. You can then use the extra cash to settle your credit cards plus other debts quickly. Else, you can deposit it to the savings account.
Paying Off the Mortgage Fast
There is no feeling that beats that of using your income in other activities instead of paying loans. Between car payments, mortgage payments, credit cards, as well as other financial obligations that you may have, reducing your monthly payment by one item makes you feel as if you are in total control of your finances.
What this means is that refinancing a mortgage that comes with lower terms allows you to settle the mortgage loan fast and become the legitimate homeowner. Furthermore, you will be subjected to high monthly payments if you opt for the thirty-year mortgage instead of the fifteen-year mortgage. All in all, it also means that in the long run, you will end up saving some cash on the interests.