There are certain times where it makes good financial sense to refinance a mortgage. When doing so, it’s important to keep your long-term financial goals in mind, so that you can choose the right loan for your situation. You should also look at the market, and see whether mortgage rates are rising or falling. If you have an ARM, and rates rise, it might be sensible to refinance to a fixed-rate mortgage. Here are some of the reasons people refinance their mortgages.

Switching from an ARM to a fixed-rate mortgage. You should consider how long you plan to remain in your home. The average person moves every ten years, so it might not make sense to pay the higher interest rate associated with a 30-year loan.

Lowering your monthly payment. Refinancing with a drop of just a half percentage point can substantially lower your monthly payment. You can also change your mortgage term- if you have a shorter-term mortgage, you can extend the term. Since the payments are spread out over a longer time, the monthly payment will be lower. You can also consider refinancing to an interest only loan; the minimum payment is equal to the interest rate for a certain period of time.

Converting your home’s equity to cash. Your equity can function like a savings account accessible through a cash-out refinance or a home equity loan. This is usually done when home improvements are needed, or to pay for college tuition or credit card debt.

Paying off credit cards. The payments on credit card debt and a mortgage can be thousands of dollars apart. The interest paid on a credit card isn’t tax-deductible, and you are almost certainly paying more in interest than you would pay on the mortgage. Using your home’s equity to pay off credit card debt can save money over the years, and can also provide a nice tax deduction.

Deciding whether or not to refinance your home mortgage will depend on your situation; how long you plan to stay in your home, market conditions, and your long-term financial goals. Talk to your financial advisor, who will help you find the best loan for your needs.

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