7 Common Reasons Why Homeowners Refinance Their Mortgage
Many homeowners who bought their homes with a mortgage are taking advantage of what we call mortgage refinancing. This means applying for a new loan and paying off your original mortgage. But why would you want to replace your existing home loan with a new one?
Homeowners who chose to refinance their mortgage have different purposes and goals to fulfill. Some of the reasons to Refinance in Texas are as follows.
Shorten Loan Term
If you initially sealed a 30-year fixed rate mortgage deal, can shorten it into the half. By getting a 15-year mortgage, you get to acquire full ownership and finish your mortgage obligations within a shorter period. You’ll also need to pay a little bit more in monthly payment even if you now have a shorter loan term.
Lower Interest Rate
Many choose mortgage refinancing because it can reduce the interest you’ll have to pay each month. By lowering your interest rate, you get to save money depending on the percentage of interest reduced.
Convert Between ARM and Fixed-Rate Home Loan
If you chose an Adjustable-Rate Mortgage when you bought a house, periodic adjustments can happen and can result in a lower or higher interest rate. Refinancing to a Fixed-Rate Mortgage can eliminate interest hikes in the future and lower your mortgage interest rate. On the other hand, converting a Fixed-Rate Mortgage into an ARM, you can enjoy lower monthly mortgage fees.
Good Read: Choosing between an ARM versus a fixed-rate mortgage
Tap On Home Equity
Home Equity Loans and HELOCs are not the only ways to tap on your home equity. You can also choose to refinance and use the funds for whichever way you deem fit. The two most common ways homeowners use the funds are for renovating their homes and consolidating debt.
Build Equity Faster
When you refinance your mortgage into a shorter loan, it shortens your mortgage terms, but a portion of your monthly payment which is for the interest will be reduced. It won’t only let you save money on interest and speed up your ability to pay the principal debt, but you also get to build your equity faster.
Cancel Mortgage Insurance
For homeowners who acquired a traditional loan with less than 20% down payment, you’ll have to pay for Private Mortgage Insurance. For conventional loans, lenders will cancel the PMI fee automatically once your Loan-To-Value Ratio reaches 78%. For FHA loans, you can’t cancel PMI fees. The only option you got to eliminate FHA mortgage insurance is through refinancing.
Combine Two Mortgages
Some homeowners applied for two home loans when buying a house. However, juggling two mortgages at once can take a toll on your finances. Not only do you carry higher interest rates, but you’re also paying for two monthly mortgages. You can choose to refinance your home loans into a single mortgage after at least 12 months. You can enjoy a single monthly rate that is lower compared to having two mortgages at a time.
Recommended Read: How to Combine Two Mortgages Into One?
The list above shows the common reasons why homeowners turn to refinance. Refinancing your mortgage can help you achieve your goals. However, not all reasons for a refi are good. Think things over and only choose to refinance your mortgage if it makes sense for you.