Looking to refinance? There are several scenarios in which this might benefit your financial situation.
Everyone’s situation is different, but in many cases refinancing your mortgage loan could have some major benefits. Take a look at the different scenarios in which a refinance might be the right move.
Save Money with a Lower Interest Rate
If current interest rates are lower than the interest rate on your mortgage, you should consider taking advantage of a refinance loan. A difference in just one percent would make your monthly payment lower – let alone save you thousands of dollars over time.
Complete Home Improvements, Renovations, or Repairs
Thinking about renovating your home, but don’t want to pay out-of-pocket costs? You can tap into your home’s equity to cover it with a cash-out refinance. Or, if you don’t have enough equity to cover the costs, you can do a renovation refinance. This will wrap the renovation loan and your mortgage loan into one monthly payment, making it a piece of cake to keep track of.
Either of these options can cover the costs of home improvements like:
- Remodeling your home office space
- Adding a powder room or full bathroom
- Repairing tile floors
- Updating the fireplace
- Putting in a pool
- Adding built-in storage to your mudroom
- Remodel your backyard patio
- And more!
Pay Off your Loan Faster
If you have a 30-year mortgage, you may want to switch to a shorter term at some point. This isn’t ideal for everyone, but if you can afford a potentially higher monthly payment, there are benefits to a shorter term, such as:
- Less paid in interest over the life of the loan
- Build equity faster
- Own your home free-and-clear sooner
Make Changes to Your Loan
If you are in a better financial situation than when you first took out your home loan, a refinance could help you save some money in a variety of ways. First of all, you could qualify for a lower interest rate now, which could save you money on your monthly payments and over time.
You could also refinance to a new mortgage loan program and eliminate private mortgage insurance (PMI). If you have a government loan that requires mortgage insurance (like an FHA loan), you may qualify for a loan type that does not require mortgage insurance (like a conventional loan) if you have enough equity in your home. No PMI means a lower monthly payment.