Mortgage rates dropped to an all-time low during the Coronavirus pandemic. Everybody is now more aware of their finances and making adjustments to their budgets.
Perhaps you are wondering if refinancing your mortgage is the right time. If you are looking to reduce your monthly expenses, these are some of the benefits of refinancing.
Lower Interest Rates
A great way to lower your interest rate is to refinance your mortgage. If you are able to save even 1% on interest rates, refinance is a good idea.
A lower interest rate can reduce your monthly mortgage payment, and will help you build equity faster.
Shorter Loan Terms
To help you pay your loan off faster, a shorter term loan can be refinanced. Your monthly mortgage payment will not have to change in any way.
Paying off your mortgage loan sooner can help you save money.
Get rid of Private Mortgage Insurance
Private Mortgage Insurance (PMI) protects the lender in case the borrower defaults on a loan or is foreclosed upon. For those who have less than 20% downpayment when purchasing a home, PMI is required. Refinancing your mortgage could be an option to get rid of PMI if your new mortgage balance is below 80%.
Urban Institute and Ginnie Mae report that the average monthly PMI payment amounts to between.55% and.25% of the loan amount.
Your monthly PMI costs could range from $138 to $563 if you have a mortgage loan of $300,000.00. Refinancing can help you save money every month.
A Fixed-Rate Mortgage or an Adjustable-Rate mortgage
Refinancing is also an option that can be used to convert an adjustable rate mortgage (ARM) into a traditional fixed rate mortgage.
If you have an ARM, rates could rise. A fixed rate loan is a smart choice, especially when rates are falling.
Cash-Out Refinancing
Refinances with cash-out can replace your current mortgage with a new mortgage for a higher amount than the home’s existing mortgage. The difference can be used to pay off other items or spent in cash.
Mortgage rates are higher for home equity loans than mortgage rates. If you’re thinking about home renovations, a cash-out refi may be a better option. Cash-out refi may also be a good option to pay off high-interest credit card debt. This could lead to significant interest savings over your card’s life.
To repay credit card debt, you should never use a cash-out refi. This is a poor financial practice you should not repeat.
Your home is being used as collateral for the loan. Before you think about a cash-out refinance, make sure that your monthly payments are on time.