Why Do People Refinance Their Homes?
With mortgage loan interest rates still being historically low, many individuals are refinancing their homes. And yes, more power to them! A refinance can serve in many ways from helping you pay off the loan quicker to get get rid of debt or help you upgrade to new furniture.
The five primary reasons why people refinance are:
To get a better interest rate
To shorten the life of the loan
To borrow funds from their equity
To switch loan types - from a fixed-rate to an adjustable and vice versa
To remove a co-signer from the loan
For most people, there's no reason to think about refinancing immediately after purchasing their house. But it's always good to keep in mind that you have that option available to you. Situations change, and sometimes it's worthwhile for you to refinance even tough you just became a homeowner.
The following are a few reasons people consider refinancing:
Interest rates drop - Even if it's just one point, it can really pay off talking to your lender as it's always good to talk to a professional to get clarity on the costs vs savings.
In need of cash - Although you should always think twice before dipping into the equity of your house, if your home is worth more than what you owe on your mortgage, and you are in need of cash to either pay off debt, or pay for education, you have the option to refinance to pull out some cash.
Income significantly increases - Maybe most us don't think to refinance when this happens, right?! But if you get a new job with a significant pay increase, you might consider paying off your loan quicker. If you have a 30 year mortgage you could refinance and do a 15 or 10-year loan. The interest rate will be lower, but the payment will be higher because you'll be paying off the loan over a shorter period.
Every individual has a different situation. In reality, to determine if you should refinance your loan, you should have a discussion with a lender that can give you all the details for you to make the best decision after having all the facts.
While lending is not my expertise, I have amazing partners who do just that! Feel free to reach out to me and I'll connect you with one of them.
