Now interest rates are at 25 years low that makes mortgage refinancing very attractive option.
Mortgage refinancing means borrower pays down an old loan with new loan.
Mortgage refinancing offers many benefits.
Reduce your monthly payments.
If your current monthly payments are just more than you can afford then refinancing can help you to lower your monthly payments. A lower interest rate lowers monthly bills and saves money each month. Even a slight difference between your existing loan rate and new rate can save you a lot for an entire length of loan.
If your existing loan rate and new loan rate are at the same level still by refinancing you can extend the term of loan and that that can help you to save money each month. This idea is good if your objective is to only reduce monthly payments towards your existing mortgage or loan.
Cash out refinancing
If you have good home equity then you can take out new mortgage with larger principal, this helps you to turn home equity into cash. For example, if you owe $ 50,000 on your mortgage and value of your home is $ 100,000 then you can refinance for $ 75,000 this gives you $ 25,000 in cash. The advantage of this type of loan is lower interest rate than what you could get for unsecured loan or credit card loan. Another advantage is interest paid on this refinance could be tax-deductible.
Shorter term mortgage
Refinancing with a mortgage of shorter term enables you to save total interest costs over the entire duration of loan. This leads to significant savings. But this can increase your monthly payments. If you can afford increase in monthly payments, this strategy will help you to save on total interest costs and also to build home equity faster.
Adjustable rate mortgage
If you are currently having a fixed rate mortgage but you are planning to stay in home only for a few more years then adjustable mortgage is right for you. Adjustable rate mortgage enables you for lower initial interest rate that gives you short term savings.
Fixed rate mortgage
If you are currently having adjustable rate mortgage and you are planning to stay in home for a long time ie for many years then switching to fixed rate
mortgage is better option for you. If interest rate is low then it enables you to save a lot of money for the entire duration of mortgage. Also you do not have to worry about what way interest rate in market is changing. It stabilizes your monthly payments for a long period of time.
Refinancing is good option to consolidate high interest debts. High interest debts include unsecured loans and credit card balances etc. You can replace all your high interest debts with low interest rate loan. This is great solution to save on all debts. If you analyze all you monthly payments towards different different loans and credit card balances etc., you will see all those different debts institute a large portion of your monthly expenditure. With refinance you can clear debts and replace high monthly payments with low rate and cheaper monthly payments.