Refinancing a mortgage is the process of acquiring a new loan to pay off an existing lender.
Four Possible Reasons to Refinance:
A mortgage is generally the largest debt most homeowners have to manage, and it is a good idea to give your personal real estate finance portfolio a check-up at least once a year.
Since there are several reasons a homeowner may choose to refinance, we’ll take a look at the top four circumstances.
A drop in mortgage rates, lowering current mortgage payments, debt consolidation or changing mortgage programs are four possible reasons to choose a refinance.
1. Mortgage Rates Drop:
Typically, the most common reason that homeowners refinance their mortgage is to secure a lower interest rate. Interest rate and loan amount determines the total cost that a borrower will pay. The lower the interest rate, the less the overall cost will be. Interest is calculated on a daily basis and usually paid back to the lender on a monthly basis.
2. Lower Payments:
Lowering a mortgage payment can be achieved by lowering the mortgage rate, lengthening the loan term, combining two or more loans or removing mortgage insurance.
3. New Mortgage Program:
Refinancing an Adjustable Rate Mortgage (ARM) to a new Fixed Rate Mortgage (FRM), combining a first and second mortgage or paying off a balloon loan are three possible reasons to explore a refinance.
4. Debt Consolidation:
If there is sufficient equity, sometimes paying off consumer debt by combining all debts into one lower monthly mortgage payment can significantly reduce the short-term deficits in a budget. However, it’s important to keep in mind the total cost of that debt by adding it into a 30 year mortgage payment.