Mortgage refinancing refers to a homeowner taking a second mortgage from a lender to clear the first balance. Thus, people essentially trade in their old mortgages for new ones in a mortgage refinance. Generally, there are two types of mortgage refinances: cash-out mortgage refinances and rate and term mortgage refinances. Homeowners usually elect to refinance their mortgages for various reasons. Some owners refinance to take advantage and convert the first mortgage's equity gain to cash. Other owners take mortgage refinances to shorten the length of their mortgage repayment at lower interests.
Individuals should always consult to ensure they consider the money saved vis-à-vis the mortgage refinancing cost. A mortgage refinancing at the right time can be quite beneficial. Below are a few reasons for mortgage owners to consider the refinancing option:
Short-Term Repayment Periods
Usually, most first-time mortgages begin with a thirty-year mortgage repayment plan. While a thirty-year period is convenient in monthly repayments, the interest repayment over the same period is quite high. Thus, most mortgagers opt for mortgage refinancing, allowing them to clear the mortgage at a lower interest rate. Refinancing a thirty-year mortgage repayment plan to a fifteen-year fixed-rate mortgage is great because it shortens the repayment period without significantly impacting the monthly repayment terms. Thus, mortgagers wishing to shorten their repayment terms should consider mortgage refinance.
Suitable Mortgage Rates
Typically, mortgage repayment rates are tied to factors like economic growth, the rate of inflation, and the current monetary policies. Mortgage rates fluctuate, affecting the monthly repayment terms. Thus, the most common reason for mortgage refinancing is improved rates. When current mortgage rates fall below an individual's repayment rate, they can refinance their mortgage to get the current lower mortgage rates. Alternatively, mortgagers whose credit ratings improve from when they took their first mortgage are eligible for a mortgage refinance at reduced rates.
Predictable Monthly Repayment Terms
As the name implies, fixed-rate mortgages do not fluctuate and have fixed monthly repayment terms. On the other hand, adjustable-rate mortgages fluctuate depending on inflation and the current economic situation. Thus, individuals on a fixed-rate mortgage do not have to worry about the economic situation.
For instance, fixed-rate mortgage holders are not affected if the pandemic affects the economy and causes mortgage rates to rise. Thus, mortgage refinancing is a great option for individuals who would like future predictable monthly repayments on an adjustable-rate mortgage. It allows mortgage owners to budget their expenses, mitigating unforeseen financial turmoil associated with volatile real estate markets. Overall, owners should consider mortgage refinance to secure their homes.Share