Why You Should Consider A Home Refinance28,864 Views
Home refinance is something that more and more people think about and there is a valid reason for it. The current economic conditions make it foolish not to think about refinancing and it may even be beneficial for the vast majority of the population that has a mortgage.
To understand why a home refinances makes sense in some conditions we need to make a mental exercise. Let us imagine that you got a 30-year mortgage 5 years ago. You managed to lock the loan with an interest rate of 4.5%. Even a year ago, a 4.5% interest rate on a mortgage would have been considered great. Now, you can get a 30-year mortgage with a fixed interest rate of just over 3%.
The dilemma comes from the fact that you got a fixed rate of 4.5% and now if you would get a new mortgage you would get 3%. A 1.5% interest difference may not sound like much but in terms of monthly payments, it can mean hundreds of dollars. This is where home refinance comes in. If you want to lower your monthly payments while still owing the same amount of principal, this is the only way.
A home refinance makes sense if you can get a lower interest rate. Your new loan will pay for the existing mortgage and you can choose to extend the period of the new loan. While this may not be a smart move, it can be a solution to lower the monthly payment even more. If possible, you should try to avoid adding more years to your loan. If you managed to get your monthly payments lower while having the same loan period, you already made great progress and saved money in the process. What you need to do is compare offers. The bank that offered you the original mortgage deal may even offer you a home refinance option but do not rush to take it. Look at what other options you may have and compare the interest rates.