Most people forget about their mortgage except for when they write a check each month to make a payment. At MortgageDepot, we know that a mortgage refinance prove to be a money-saving measure for some borrowers.
When should a borrower refinance a loan?
It is a good idea for owners of residential, commercial, and other types of property to periodically review the mortgages on those properties to determine if a loan refinance could save them money. Our loan officers suggest refinancing an existing mortgage loan if one or more of the following situations exist:
- Adjustable-rate mortgage: Borrowers with an adjustable-rate mortgage are at the mercy economic conditions in the country and policy decisions by the Federal Reserve. An increase in interest rates in general eventually results in an increase in what borrowers with adjustable-rate mortgages pay each month. Refinancing an adjustable rate mortgage with a fixed-rate loan offers borrowers the peace of mind of knowing their interest rates will not change for the life of the loan.
- Ability to make larger monthly payments: For many people in the market to purchase a home, the only way to afford the monthly payments on a mortgage is by spreading them out over 30 years. A raise or a new and better-paying position at work could offer a borrower the opportunity to save money by refinancing a 30-year mortgage with a loan offering a shorter term. A 15- or 20-year mortgage provides a significant savings in the amount of interest a borrower pays over the life of the loan as compared to a 30-year mortgage.
- Improved credit: A borrower’s credit score affects the interest rate charged by a lender. Making monthly mortgage payments on time may result in a borrower’s credit score improving to the point that refinancing the mortgage loan could result in a lower interest rate and a decrease in the monthly payment. If the improved credit score allows a borrower to refinance at a lower rate of interest and for a shorter term, such as 15 years instead of 30, the interest saved could be significant.
Lowering a borrower’s interest rate is only one reason a person might consider refinancing a loan.
Reasons to refinance loans
Refinancing mortgage loans offer borrowers the opportunity to obtain money to use for other purposes, including the following:
- Paying off high-interest rate credit cards
- Consolidating personal debt
- Making repairs and improvements on a home
- Paying college tuition
A loan refinance gives borrowers the ability to access the equity in their homes to be used for whatever purposes they wish to use them.