With mortgage rates hovering close to historic lows of 4 percent, you may consider refinancing home loans to take advantage of the affordable rates, however, according to HouseLogic there’s more to refinancing your home than just lowering your monthly payments.
By refinancing your mortgage, you have the option to make changes to your mortgage term. If you change your term from a 30 to 15 years, the interest rate will be lower and total interest costs will be shortened. Additionally, this can strengthen a home’s equity and the loan can be paid off quicker, even if monthly payments increase.
Refinancing a loan can allow you to switch from an adjustable rate mortgage to a fixed rate mortgage, says HouseLogic. ARMs offer low rates at the origination of the loan, but can be unstable which makes budgeting a challenge. Switching to an FRM can offer peace of mind since your rate won’t fluctuate.
Refinancing a home loan can also allow borrowers to withdraw cash from their equity to put toward long-term investments like home improvements or funding a child’s education, says the source. Additionally, refinancing can allow you to consolidate a main mortgage and any outstanding home equity loans, which can yield a lower overall monthly payment.