Many homeowners justify their reasons to refinance noting that doing so can help them obtain a lower interest rate or give them an opportunity change the term of the loan. Some join the move because of a desire to switch from an adjustable-rate mortgage to a fixed-rate one, or cash out home’s equity to finance a major purchase.
These reasons seem beneficial, but be wary for other motivations refinancing. Utah mortgage professionals note that if you’re considering refinancing your mortgage, it is important to determine whether your reasons for doing so will benefit you in the long-run.
It’s fine to refinance if you have 30-year mortgage, as the low interest rates may make a 15-year mortgage seem doable. It is best to use a mortgage calculator to find out what your new payment might be. If it turns out to be feasible, talk to a mortgage professional.
The lower interest can significantly reduce your payment and help you save hundreds or thousands of dollars in interest. A lower mortgage payment, adds Altius Mortgage Group, could free up hundreds of dollars per month that you could save or invest.
Loan Conversion and Equity
You may also choose to convert an ARM into a fixed-rate loan to protect you from the rising interest rates in the future. It also makes sense to refinance and cash out your home equity to start a business or purchase an investment property. Be sure, however, that you can manage the debts responsibly.
A Word of Caution
If you’re considering refinancing to consolidate your debts, it can be a risky move. The whole idea of refinancing may seem feasible, but many of those who have generated high interest rates on credit cards and other purchases are more likely to do it again, as mortgage refinancing gives them available credit. This may result in wasted fees in refinancing and an endless debt cycle.
Refinancing can only be a good move if it shortens the loan term, reduces the payment, and builds you equity quickly. Be sure to use it carefully, in a way that it will help you save more and get your debt under control.