Refinancing a mortgage sounds counterintuitive – after all, why would you pay off an existing loan and replace it with a new one? It sounds like it can burn holes in your pocket, but when done right at the ideal time, it’s a tactic that can save you thousands of dollars in the long run.
It allows people to lower their interest rates, though some of its other appeals include shortening your mortgage term, raise funds for emergencies, or shift from an adjustable-rate mortgage to a fixed-rate mortgage.
2020 presents itself as the optimal time to refinance your mortgage since the COVID-19 outbreak has significantly lowered interest rates, making it an excellent option for those who still have a steady income. If you’re still on the fence, here’s a list of reasons refinancing can take a load off your financial burdens:
Benefit #1: Secure a Better Mortgage Rate
When mortgage rates drop, it’s the perfect time to take out the loan and save money in the long run by switching to a new home loan with lower interest rates. Even one percent of savings can do wonders for your repayment in the future, but beyond having more cash to set aside for yourself, you can also improve the equity in your home.
This can significantly shave off your monthly payment, taking off 4.1 percent from the initial 5.5 percent of a 30-year fixed-rate mortgage, for instance. When put into numbers, you’ll only need to pay a whopping $477 instead of the principal interest payment of $568.
Benefit #2: Shorten Your Term
As seen above, refinancing can cut back a significant portion of your interest payments, though it can also turn a 30-year home loan into a 15-year fixed-rate mortgage. Shorter terms have lower interest rates, allowing you to finish your term without adding to the monthly mortgage payment.
Benefit #3: Consolidate Debts
Paying for interest rates using credit cards can ramp up your mortgage rate, but opting for a cash-out refinance allows you to cut back your fees on interest and save on your monthly payments.
Refinancing also ensures your mortgages and home equity loans remain tax-deductible since interest paid on using unsecured debt is not. Couples can reduce as much as an impressive $100,000, while single individuals can deduct up to $50,000.
Benefit #4: Borrow Money
Refinancing your mortgage not only fulfills the purpose of lowering the interest rates, but it also gives you more room to borrow money from your home equity in case you need to pay for emergency bills – be it to consolidate debts or cover for medical expenses.
The Bottom Line: When It Makes Sense to Refinance Your Mortgage and Its Benefits
Different situations call for distinct solutions, but so long as your interest rate is one percent lower than your existing rate, refinancing your mortgage can be an effective, money-saving solution.
How Can We Help?
We’re a licensed mortgage originator in Detroit, Michigan, that strives to help people turn their dream homes into reality. With our client-centric and tailored loan services, we can help you reach your financial goals contact us today at (248) 930-8709.