Top Reasons to Home Loan Refinance

Find out what home loan refinance can do for you. Read about the most common reasons people chose home loan refinance here.

Reason #1: To Lower Monthly Payments

One of the most popular reasons people opt for home loan refinance is to lower their monthly mortgage payments. Though home loan refinance can save you hundreds on your payment each month, you have to weigh these savings with the up-front costs of the loan. First of all, make sure you intend to stay in your home at least another five years or so. Otherwise, you might end up losing money on home loan refinance. Secondly, if current interest rates are 1/2% to 5/8% lower than your mortgage interest rate, home loan refinance is probably a good decision.

Reason #2: For the Security of a Fixed-Rate Mortgage

An adjustable-rate mortgage is a smart way to buy a home with low initial payments. However, if your ARM is about to reset or has already done so, you might find the prospect of drastic fluctuations unsettling. Home loan refinance can give you the security of a fixed-rate mortgage, and, if interest rates are low at the time of refinancing, you will have locked in these low rates for the life of the loan. Remember that initial payments for a fixed-rate mortgage will be higher than those of an ARM.

Reason #3: To Achieve Short-Term Savings with an ARM

If you need to reduce your monthly payments ASAP because of income changes or other circumstances, using home loan refinance to switch to an ARM can be a wise decision. For example, if you intend to move out of your house in a year or two, a home loan refinance ARM can help you save money on payments in the meantime. To minimize your up-front costs, try looking for a no-out-of-pocket-costs ARM.

Reason #4: To Get Cash from Home Equity

Cash-out home loan refinance enables you to turn the home equity you've built into cash for major expenses or debt consolidation. You can use home loan refinance to get cash for tuition expenses, investments, home repairs, etc. You may also choose to pay off your other, high-interest debts with your home equity and combine them into one convenient monthly payment.

Reason #5: To Drop Mortgage Insurance

As mentioned before, you should consider home loan refinance if you have more than 20% equity in your home. Once you reach this point, you no longer need private mortgage insurance (PMI), which adds to your monthly mortgage payment. You can use home loan refinance to get a loan without PMI.

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