When many people consider refinancing a mortgage, they often wonder if they should refinance their mortgage or not. There are many reasons to refinance a property, so when considering a refinance, it is important to make sure that there is a benefit to the new mortgage loan. Without a benefit to the new home mortgage, there is no need to refinance.
Lower Monthly Mortgage Loan Payment
One of the main reasons people consider a refinance home loan is to lower the monthly payment. Refinancing can save you money per month by decreasing the loan payment. The rule of thumb is that a refinance home mortgage is beneficial if the home mortgage payment decreases by at least 5%. So, if your current mortgage loan payment is $1000, then the new home mortgage loan would need to have a payment no higher than $950. Many lenders will not approve a refinance if there is not a benefit to the new mortgage loan and many mortgage companies use the 5% rule as to determine if the new mortgage has a benefit or not.
Lower the Home Loan Term
Another reason to refinance is to lower the term. Many people will refinance from a 30-year mortgage to a 15-year mortgage in order to payoff the home mortgage loan faster. By refinancing into a 15-year loan, not only do you save money on the interest rate, but you will save money over the lifetime of the home loan. With current interest rates low, 15-year mortgages have become a common option for many homeowners.
Cash Out Mortgage Loans
For many homeowners, a cash out mortgage is a great opportunity to use the equity in their property to pay off debts, do home improvements or to just get some extra cash out. A cash out mortgage refinance can help lower total monthly debt payments by consolidating credit cards, car loans, installment loans and mortgage loans into one payment. By consolidating debts into one payment, many consumers have saves thousands per month.
A home mortgage refinance can also be used to catch up a homeowner on their escrow account or help pay off any delinquent property taxes. At times, some homeowners can get behind on their escrow accounts because property taxes and homeowner’s insurance premium change yearly. If the escrow account becomes too short, many mortgage lenders will increase the month payment in order to catch up on the negative escrow account. Sometimes the increase mortgage payment is over $500. By refinancing, the homeowner has the ability to restructure the escrow account.
Also, if a homeowner is behind on property taxes, a refinance could help pay the property taxes.
Finally, it is important that when considering a refinancing home loan, that there is a benefit to the new home mortgage. Without a benefit to the new home mortgage, many mortgage lenders will not approve the loan. So whether you are looking to lower your rate, lower your monthly payment, lower your loan term or take cash out, talk to your mortgage loan consultant to see what benefits you have in refinancing.