Mortgage refinancing, or restructuring your existing mortgage, is a financial option that involves replacing your current mortgage with a new mortgage, usually with different terms. Here are some common reasons why people choose to refinance their mortgage:
- Lower interest rates: One of the main reasons to refinance a mortgage is to benefit from lower interest rates. If interest rates have dropped since you originally took out your loan, refinancing can help you save money on your monthly payments.
- Reduced Monthly Payments: You may choose to refinance to extend the term of your loan, which will reduce your monthly payments. This can be useful if you need to reduce your monthly expenses.
- Reduced loan term: If you want to pay off your mortgage faster and save on interest in the long term, you can refinance to get a shorter term loan.
- Change in rate type: You can switch from an adjustable rate mortgage to a fixed rate loan (or vice versa) by refinancing. This can give you increased payment stability or potentially lower your interest rates.
- Cash Out: If you have enough equity in your home, you can refinance to take out some of that money as a loan. This can be useful for financing renovations, consolidating debt, or other major expenses.
- Improvement in your financial situation: If your financial situation has improved since you obtained your original mortgage, you may qualify for a more favorable interest rate or more favorable loan terms by refinancing.
- Debt Consolidation: You can refinance your mortgage to include other non-mortgage debts, such as credit cards, into a single mortgage. This can simplify your payments and potentially lower your overall interest rate.
It is important to note that mortgage refinancing may incur fees, including closing costs, appraisal fees, and application fees. Before refinancing, it is recommended to do the math to determine if the potential savings justify these fees.
To begin the refinancing process, you will need to submit a mortgage application similar to the one you completed for your original loan. You will also need to meet the lender's credit and income requirements.