Owning a house has always been everyone’s dream, but achieving that dream has always been a challenge as well. Even when you finally get a hold of a house through a mortgage, it’s still challenging because mortgage rates can get astronomically high.
However, lately, there has been a method that’s taking the industry by storm. This method is known as refinancing a mortgage.
Refinancing a Mortgage: What Is It?
Generally speaking, refinancing a mortgage refers to the act of paying off a current loan and swapping it for a new one. This process is done for the sole purpose of allowing you to get a better interest term and rate.
Now that you know what refinancing means, you’re probably wondering: why do people decide to go through this process?
Why Refinance Your Mortgage?
·To Get a Better Interest Rate
This is actually the most popular reason why someone would choose to refinance their mortgage.
Basically, when you choose to go through refinancing, you can get a reduced rate on your current loan. And when you get a reduced interest rate, you can save a lot of money.
·To Obtain a Loan That Has a Shorter Term
Moreover, the decline of interest rates also provides an opportunity for people to get a new loan that requires you to pay a similar amount as the previous loan — possibly even less — but this time, the term is not as long.
In other words, refinancing will allow you to pay for your mortgage in a shorter time period.
·To Convert to Adjustable-Rate Mortgage (ARM) or Fixed-Rate Mortgage
ARMs generally start with lower rates, but as time passes by, the rates can go higher. If this is the case, refinancing will allow you to convert to a fixed-rate mortgage, which will take out the concern over interest rate hikes in the future.
However, fixed-rate mortgages have a higher monthly payment, so some people might want to go with ARM instead. Refinancing will enable you to do this as well.
·To Tap Equity or Stabilize Debt
Some people choose to refinance because interest on mortgages is tax-deductible. Additionally, remodeling the house adds more value to the property. So, with refinancing, they can save more money, and they can also access the equity in their homes to cover significant expenses.
Aside from that, replacing a high-interest loan with a low-interest one makes your credit look good on paper. As a result, refinancing can also be used to consolidate debt.
Refinancing a mortgage is all the talk nowadays. And though this process has benefits, you must still note that this can lead to even more crushing debt if you’re not careful enough.
So, should you refinance your mortgage? Well, the choice is fundamentally up to you. But you should do all the necessary research first and weigh in all the advantages and disadvantages. When you do this, you’ll be able to make a sound and wise financial decision. For more financial advice from The Money Man and ways on how to refinance your existing loan, give the team at Firefighters Credit Union a call now at 608-784-9480.