During the Coronavirus pandemic, mortgage rates fell to record lows. Everyone is now looking at their finances more closely and making adjustments to their budgets.
You may now be wondering if it is a good time for you to refinance your mortgage. These are some benefits of refinancing if you’re looking for ways to lower your monthly expenses.
Lower Interest Rates
Refinancing your mortgage is a great way to reduce your interest rate. Refinance is encouraged if you can save even 1% on your interest rates.
A lower interest rate will reduce your monthly mortgage payment and help you build equity quicker.
Shorter Loan Terms
A shorter term loan can be refinanced to help you pay off your loan faster. Normally, your monthly mortgage payment won’t have to change much.
You can save money by paying your mortgage loan off sooner.
Get rid of Private Mortgage Insurance
Private Mortgage Insurance (PMI), protects the lender in the event that the borrower defaults or is foreclosed upon. PMI is required for those who make less than 20% down payment when they first purchase a home. If your new mortgage balance falls below 80%, refinancing your mortgage may be an option to eliminate PMI.
Ginnie Mae and Urban Institute report that the average annual PMI payment is between.55% and 2.25% of the loan amount.
If you have a $300,000.00 mortgage loan, your monthly PMI cost could be between $138 and $563. Refinancing could help you save a lot of money each month.
From an Adjustable-Rate Mortgage to a Fixed Rate Mortgage
Refinancing can also be an exceptional option to convert an adjustable-rate mortgage (ARM), into a traditional fixed-rate mortgage.
You could be subject to rate increases if you have an ARM. It is smart to opt for a fixed rate loan, especially when rates have fallen.
Cash-Out Refinancing
Cash-out refinances replace your existing mortgage with a new one for a greater amount than the home’s current mortgage. You can spend the difference in cash or use it to pay for other things.
Home equity loan rates have higher mortgage rates than those of mortgage rates. A cash-out refi might be a better choice if you are considering home renovations. A cash-out refi can also help you pay off high-interest credit cards debt. This could result in significant interest savings over the life of your card.
You should not use a cash out refi to repay credit card debt. It’s a bad financial practice that you don’t want again.
Remember that your home is being used to secure the loan. Be sure to make your monthly payments on time before you consider a cash-out refinance.