Solid reasons for refinancing a home mortgage

One of the biggest questions many homeowners ask is, “Should I refinance my mortgage?”

The number one reason most homeowners refinance their home is simply to save money. But that’s not the only reason. There are others, so it’s wise to consider all possible scenarios before proceeding.

peace of mind

An adjustable rate loan can be a wonderful thing – when interest rates are low. If your mortgage is adjustable, consider refinancing to give yourself “peace of mind” financially.

For example, if you refinance a low-rate adjustable-rate mortgage to a fixed-rate one, you might not save any money in the short-term, but could save a bundle in the long-term if interest rates soar in the future. A fixed rate loan gives you peace of mind that your main mortgage payment will not change over the life of the loan.

Home improvements and equity investments

Another reason to refinance is if you need a chunk of cash for a home improvement project or to invest in other real estate. If you have enough equity in the home, lenders will allow you to take cash (i.e., equity) out of the home. If you choose this reason to refinance your mortgage, the money earned should be used to build more equity in the home through improvements. If you decide to invest in home equity, be sure the investment will provide a significant return on your investment.

Lower prices save money

The vast majority of homeowners will refinance an existing fixed rate mortgage at a lower rate, thereby reducing the size of their monthly payment.

Can a small rate cut be worth a refinance? You bet! A 1% interest rate reduction can save hundreds of dollars a month and tens of thousands of dollars over the life of the loan.

Cost of refinancing a home mortgage

There are many ways to refinance a home with little or no cost to you, the borrower. A good mortgage broker can offer programs that don’t require money to complete the new loan. Closing costs can go into the new loan, or if you have the money, it’s a good idea to pay closing costs upfront to avoid paying interest on that money for years to come.

Before you pick up the phone to call your mortgage broker, make sure you have solid reasons for a mortgage refinance. Write down the pros and cons and you’ll have no trouble deciding whether or not to take the plunge.