What is mortgage refinancing?

Paying for a housing loan is the price for a worthy dream – owning a home. Although homeowners committed on this journey the first time they decided to buy a home, unexpected events could make this journey extra challenging.
Mortgage refinancing, simply put, is about looking for your options to continue paying for your mortgages and to explore your chances for lower risks, lower rates, and higher benefits. Mortgage refinancing allows you to replace your current home loan, especially when it’s unsustainable for you, for a new one.

How does it work?

When you pay for a mortgage, the money goes to the seller through your lender. And when you refinance your mortgage, the new mortgage pays off the balance from your former home loan.

Is mortgage refinancing right for you?

1. Lower your monthly payment

One of the best reasons why you should refinance your mortgage is to lower your monthly payment through lower interest rates. However, you should make sure that current mortgage rates are lower than the one in your current mortgage. Don’t underestimate decimal points when it comes to these rates for it could save you thousands in your payments.

2. Shorten your loan term

There’s not a better relief than paying off your mortgage earlier than you originally planned. Whether it’s a mortgage, car loan, credit cards or any other financial obligations; paying it off early, even for a single month, is a huge weight off your shoulders already.
Refinancing your mortgage for a shorter term gives you an opportunity to finish off paying for your home loan sooner. Just make sure you’re ready to take on higher payments, but in the long haul, the financial freedom this’ll give you is worth it.

3. Enjoy predictability and stability in your finances

If your current loan is an adjustable rate mortgage (ARM), you can refinance to a fixed-rate loan. This means you’ll be able to lock in a rate that’ll protect you from the rising rates in the future. This’ll bring stability in your finances since the rates are already fixed, making your monthly payments predictable. You’ll have a good sense of control over your finances, and you’ll be able to budget better.

4. Build your equity faster

This may sound far off at first, but switching to a shorter term, which will lead you to higher payments, can be a great deal for homeowners. Shortening your mortgage term from a 30-year to a 15-year mortgage, for instance, will help you build you equity faster. This move will also save you more money for lower interest rates.
When you build your home equity, you’re increasing the value of your home and decreasing the amount you owe.

5. Get cash to pay for your needs

Mortgage refinancing is a good opportunity to access your equity, especially for times you most need it. A cash-out refinance is a good alternative to home equity loan that lets you cash out a lump sum from your home equity. This works by refinancing for a mortgage that’s more than you owe and taking the difference as cash.
Many homeowners tap into this and maximize this for their home renovations and improvements, investments on a property, or child’s education.

6. Improve your credit score

Besides paying your mortgage on time every month, using your extra cash from the cash-out finance can also improve your credit score. You can maximize your cash-out finance to pay off credit cards and other debts faster, boosting your credit score. You can also simply put the extra cash to high-yield investments and savings accounts.

7. Consolidate your debt

You can use mortgage refinancing to consolidate debt. For instance, if you have other high-interest debts, credit cards, or student loans, you can consider refinancing your mortgage.
Debt consolidation means you’re combining all your debts into one loan, with a single interest rate for all of these in one regular monthly payment. This’ll ease your burden of managing multiple debts and will bring huge improvements on your cash flow.

Final word

Mortgage refinancing is a wise move if any of these reasons catch your financial situation and if you assess that a new loan will really benefit you financially. Making a decision on whether or not you should refinance your mortgage relies heavily on your understanding of your own financial situation and the market.

TRUE Notary is here to provide you notarial services in closing your mortgage deals. As mortgage documents contain sensitive information and require timeliness, you need experienced professionals to assist you. TRUE Notary is right for you. Contact us today!