Buying a home is a huge expense – in fact, it’s likely the biggest and most expensive purchase you’ll ever make. And when you take out a mortgage, you take on a loan that lasts decades. But fortunately, if you’ve taken on a mortgage that doesn’t work for you, you can change it.
Mortgages are costly, especially if you get a high or variable interest rate and long repayment period. However, refinancing your mortgage could offer a number of financial benefits that make your payments more affordable.
If you’re looking for a way to improve your finances, lower your mortgage payments and potentially save money, refinancing your mortgage could be the answer. But, before you refinance, it’s important to know the following.
Refinancing Your Mortgage Could Save You Money
One of the top reasons homeowners choose to refinance their mortgages? The potential for lower payments.
Lower monthly payments are one of the biggest financial benefits of mortgage refinancing. When you originally took out your mortgage, your repayment schedule – and your monthly payment amount – was set. It included your interest rate, how much you owed, and the lifetime of the loan. But as these factors change, so does your monthly payment.
And if you took out a mortgage when interest rates were high for borrowers, or you agreed to a lengthy repayment period, your monthly payments could drop. But that can only happen if you refinance.
For example, if you’re able to get a lower interest rate by refinancing your mortgage, you could save $20,000 or more in interest alone. And if you added a few years to your repayment plan, you could see your monthly payments decrease.
So, refinancing your mortgage could save you hundreds of dollars per month. And that could add quickly over years of repayment.
Refinancing Can Lock in a Better Interest Rate
As mentioned earlier, your interest rate plays a large role in how much you spend on your mortgage. Interest can cause you to pay thousands – or tens of thousands – of dollars in extra cash over the lifetime of your loan.
If your credit score has improved since you originally took on your mortgage, it’s time to consider refinancing. Doing so could lock in a better interest rate and save you a ton of money.
A better credit score means you could qualify for a lower interest rate. Even a 0.4 percent change in your credit score can result in huge savings over years of repayment. This means refinancing could save you a lot.
And your interest rate could increase if you don’t refinance. If you currently have an adjustable-rate mortgage, your interest rate can change at any time. Typically, these loans have a low interest rate for the first few years. Then, over time, the interest rate “adjusts” to a higher rate. Refinancing to a fixed-rate mortgage will give you a more secure, unchanging interest rate that you won’t surprise you. And if refinancing to a fixed-rate mortgage also gets you a lower interest rate, this will lower your monthly payments and the total amount you pay.
Refinancing a Mortgage Can Improve Your Cash Flow
If you’re having a hard time saving for other goals – like emergencies, future expenses, or a new car – because of your costly mortgage, refinancing could put more cash in your bank account.
When you refinance, you can either shorten your repayment period and take years off the loan or lengthen it and add years. And either option could give you more money to put towards other expenses every month.
That’s because both of these refinancing options could lower your monthly payments. If you lengthen your repayment period, you’ll pay less each month for a longer period of time, helping you cut your mortgage payments month to month. If you choose to shorten your repayment period, you’ll pay off the loan faster and pay less in interest.
Shop Around for the Right Lender Before Refinancing
If you’re thinking about refinancing your mortgage, you need to know these important financial benefits. But you shouldn’t just think about the potential savings – you’ll also need to consider the lender you’ll use.
You want to refinance with a lender who offers loan terms and an interest rate that work for you. Refinancing should improve your situation, not make it harder. And in order to find the right lender, you’ll need to do your research.
Shop around and consider different lenders. No two banks are equal, and mortgage offers and options can differ significantly. Make sure you check current mortgage refinancing rates and where interest rates are heading. You should compare interest rates and value to ensure you’re getting the best offer possible.