While it would be great to be able to buy the house of your dreams with cold hard cash, that is a move that is usually reserved for lottery winners and the fabulously rich. The rest of us have to take out a mortgage that allows for monthly payments that fit into our budget.
Mortgages are taken out over the course of decades, and there are all kinds of things that can happen during that time. The interest rates may drop to a level that is well below what is being paid, or a financial crisis of one kind or another may leave you having to re-adjust your budget. Whatever the case, a refinancing of the mortgage may be what helps.
Let’s take a look at the benefits that can come from going a different route with your mortgage:
Lower monthly payments
There can be no denying that a home is the most valuable asset that a person can own, but it’s also fair to say that the mortgage payment is more than likely the largest of your monthly expenditures. Those who took out a mortgage at a high interest rate can end up saddled with a hefty monthly bill, which is why refinancing when the rates drop is such a good idea. Getting your mortgage down to a lower rate means paying less every month.
Change from a fixed to adjustable rate
Taking out a mortgage can be a bit of a crap shoot, as you never know where the interest rates are going to go from year to year. With a fixed rate, you know that you will be paying the same rate regardless of what happens, but when those rates start to drop, you can begin to feel the pinch. When the interest rates get down to a low level is when you should consider switching to an adjustable rate mortgage, as this will once again result in a considerable savings passed on to you.
Shorter mortgage length
When you first take out a mortgage, you may chose the length based partly on what you earn every month. Since there is the possibility that you will begin to earn more in your career, there comes the possibility that you will have more disposable income. Rather than wasting that money, consider refinancing your mortgage so that you reduce the length. Shaving 5 to 10 years off the length of the mortgage can mean paying back less interest whilst also increasing equity value.
Cash in your pocket
With a mortgage refinance, you will be able to draw from the equity that you already have in your property. This can come in handy of you and your family hit a cash crunch. It can also be a way to pay for any renovations or improvements that need to be done to your home.