3 Reasons for Refinancing Your Home
In the U.S, there was a boom in home refinancing in 2020. To be more exact, there was a 200% increase in the overall dollar value of refinancing in last year’s second quarter compared to 2019’s second quarter. This is just one of the reasons for refinancing your home.
What led to this trend? The Federal Reserve is primarily responsible. As the central bank of the U.S., it wants to keep the economic gears turning, which means that credit needs to keep flowing. For everyday people like you, that spells out reduced interest rates.
Should you jump on the refinancing wagon? Read on below to find out three benefits of refinancing your home.
Reduced Monthly Payments
What’s not to love? Mortgage rates have fallen quite a bit over the past ten years, and the trend is likely to continue. And lower mortgage rates mean lower monthly payments.
If current interest rates are lower, you can reduce your monthly payment by applying for a loan of the same term. Why not use the fact that interest rates are now lower than when you bought your house?
Refinancing the balance on your loan at a reduced sum can decrease both the monthly payment and the total cost of the loan. For example, if you have a 30-year mortgage, you could refinance for another 30-year mortgage. A 30-year fixed-rate mortgage with a 5.5% interest rate on a $100,00 home has a principal and interest payment of $568. The same loan at 4.1% lowers the fee to $477. This is clearly one of the best reasons for refinancing your home.
You Can Pay Less Interest
We arrived at, hands down, one of the best reasons to refinance – you secure a lower interest rate.
Refinancing usually leads to a 2% reduction in your interest rate. But many lenders remind that even 1% saving is worth making the move of refinancing. Lowering your interest rate means saving money, but it also means increasing the rate you build equity in your home.
You will significantly benefit if the plan pans out and you reduce the loan term. When you refinance a 30-year mortgage into a loan with a shorter one (15-year or 20-year), your monthly payments are likely to be higher, but you will pay less interest over the life of the loan.
You may be in for a win-win situation: shortening the loan term means substantially reduced rates. You will pay off the mortgage faster and pay less in interest over the long haul. You can continue to use that saved money to pay off the mortgage faster and save on the overall interest paid.
Cash-out refinance switches your current mortgage with another home loan for more than you own on your house. So it means you can borrow more than you owe at the moment and take the difference in cash.
BlackKnight’s report shows that we hit record highs of tappable equity. Around 45 million homeowners have equity they can tap into. That’s about $125,000 per person. And that is all possible due to rising home prices. Cash-out refinance makes spinning equity into cash possible.
People overwhelmingly and smartly use cash-out refinance for home renovation. Freeing up cash means you have emergency funds on hand if you need some urgent home repairs or want to finally freshen your home with new units and renovation. Over the years, refinancing your home has proven to be a common way for people to improve their properties. Some use the cash to expand their space and move their elderly parents in to take better care of them. Others add on units that they later rent out, allowing them to earn passive income as landlords.
Refinance Your Home the Right Way with Credit Repair
The better your credit score is, the better the rate you can qualify on your loan. Before you take the crucial step of refinancing, consult our credit analysts at White, Jacobs and Associates. We help bring up your credit score substantially, and we seize back your financial freedom. Book your free consultation today and get your personalized credit repair plan.