Posted on: 6 June 2016
Buying a home is normally one of the largest purchases a person makes during his lifetime. Many homeowners must take out a mortgage loan with a bank or other lender to purchase a home. Depending on the amount borrowed, the type of mortgage and the interest rates on the loan, it may take many years to pay off a home loan. However, some homeowners find it more beneficial to refinance their original mortgage loan. These are some of the advantages of refinancing a mortgage loan.
Getting A Lower Interest Rate
Interest rates can rise and fall at any given time. However, if you have a high interest rate at the time that you obtain your original mortgage loan, it is likely that you will have this same interest rate until the loan is paid in full.
However, when refinancing a mortgage loan, it is possible to get a lower interest rate. If you refinance when interest rates are lower than they were when you first took out the mortgage, you will now have a mortgage loan with a lower interest rate. If the interest rate is lower, you may now also have a lower monthly payment when paying back the refinanced mortgage loan.
Converting To A Different Type Of Loan
When taking out a mortgage you may choose an adjustable rate mortgage that involves having a low interest rate the first few years you are paying on it. But, the interest rate increases after this predetermined time period is over. You can also choose a fixed rate mortgage instead in which the interest rate stays the same throughout the lifetime of the loan.
However, if you are not happy with the type of loan you have, you can change this by refinancing the mortgage. For instance, if you have an adjustable rate mortgage but prefer to have a fixed rate mortgage, this can be done at the time that you refinance the loan.
Cash Out Refinancing
You can also refinance the loan for what is owed against it plus the amount of equity it has. Equity is the difference between the value of the home and what is left owed on your mortgage. Of course, this would mean you would be paying back both the remainder of the original mortgage loan and the amount of equity that you added to the refinanced loan. But, this is a good way to gain extra money that can be used for doing home improvements, paying off other debts or paying the cost of sending your child to college.
It is a good idea to sit down with your loan officer and discuss the options and advantages of refinancing your mortgage ( by a Member FDIC and Equal Housing Lender) before making this decision. This will give you a clear understanding of everything that will be involved.Share