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The most common reason why people refinance mortgages is that the rates have gone down. But how much lower must price go to justify a refinance? Purchasing your very first home must have been an exciting experience. Home ownership is a huge milestone, especially in today's economy. Often, families lock down an interest rate that they see as decent. However, years down the line interest rates decrease or, they encounter a financial situation they can only solve by refinancing. Working with a trusted mortgage lender ensures you get financial advice that helps you answer this question and so many more. Read on to learn about valid reasons to refinance your mortgage.
1. Interest Rates Have Gone Down
Homeowners save a significant amount of money if they refinance their mortgage and get one with lower interest rates. Lower interest loans is the reason people refinance just about any loan; be it student loans or credit card debt. It is the most reasonable reason to take up a new loan, but according to experts, you should evaluate whether the rates are low enough.
Work out how much you will save each month and make sure the savings are a function of more than the interest rate. Remember that your new monthly payments are also a function of the term of your new loan. You should not use the latter to gauge how much you save because the monthly payments will drop if the new contract extends the loan term.
Remember to also factor in the tax consequences that come with the new mortgage, so you know exactly what you are getting into. The mortgage business is a complicated one. That is why you need to work with a trusted mortgage lender with years of experience in their field. You'll need financial advice to make sure you make the right decision.
2. When Your Credit Score Goes Up
This is a valid reason to refinance your mortgage because you stand a chance to qualify for a lower interest mortgage. Even if the interest rates have not gone down, a lower interest loan allows you to save a significant amount of money. The FICO credit score is the most important factor considered by mortgage lenders to determine the loan you qualify for.
Use credit score apps and websites to have a rough idea of what your credit score looks like. Replacing your existing mortgage with a new one is a big step, ensure you settle for the best mortgage because once you fully pay the existing one, you'll be left to pay the new mortgage.
3. Converting Your ARM to a Fixed Rate Mortgage
Some may say that it only makes sense to explore mortgage refinancing if you save money in the end. But when it comes to finances, peace of mind is also a significant factor to consider. If you have an adjustable rate mortgage (ARM), it is wise to refinance to convert it to a fixed rate mortgage if you believe interest rates are on the rise.
Even better, you should always base your refinancing decisions on today's rates and not future predictions; this case is different. With an ARM, your rate may increase beyond what you would pay with a fixed rate mortgage. This conversion gives you peace of mind knowing you can afford the monthly payments.
4. Your Home has increased in Value
If the value of your home goes up, you can leverage this to get a cash-out to refinance. A cash-out loan is an excellent alternative to a home equity loan as it allows you to get a bigger loan to pay your existing debt and receive the difference in cash.
In case you have other high-interest debts to take care of, this option allows you to reclaim your financial balance. An increase in your home's value will enable you to refinance for more than the balance of your mortgage.
Conclusion
The option of refinancing a mortgage allows families to get a better mortgage deal that will enable them to manage the monthly payments without struggling. If you are thinking about refinancing your mortgage, work with a trusted mortgage lenders to get the best financial advice. Are you thinking about refinancing or mortgage? First Savings Mortgage is a respected source for residential financing in Virginia, Maryland, Washington D.C, Florida, Delaware, North Carolina, and South Carolina. Contact us today or apply for a mortgage.
Please note, by refinancing your existing loan, your total finance charges may be higher over the life of the loan.