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There’s no doubt mortgage rates are at an all-time low, and many people are using these low rates to refinance their homes. In the first half of 2021, borrowers saved over $2,800 annually in mortgage payments by refinancing, according to research by Freddie Mac. There are many reasons to refinance your home loan; continue reading to find out if refinancing may be the right option for you.
Some of the most common benefits of refinancing your home include saving on interest and to pay off your home sooner - but those aren’t the only benefits. Depending on the equity you have in your home, you can also get rid of Private Mortgage Insurance (PMI) payments. Many people also think that their monthly payment will go up if they refinance to a shorter-term loan; however, depending on how much you’ve already paid off, a short-term loan with a lower interest rate can actually shrink your loan payment.
Should You Refinance?
The reason to refinance or not is specific to every homeowner. Here are four reasons to consider when looking to refinance:
1. Do you need cash for a big expense?
A cash-out refinance is an option if you have built up enough equity in your house to access cash by refinancing more than what you owe and pocketing the difference. It can help pay for college, home renovations, consolidate debt, and more.
2. Do you want to pay off your house faster?
In 2021, 30% of borrowers shortened the term of their home loan by refinancing from a 30-year to a 15-year fixed-rate mortgage. By shortening the term of your loan, you can substantially reduce the amount of interest you will pay during the life of your loan. Spending less on interest means you can use the money to increase your long-term net worth by saving more for retirement or building your emergency fund, for instance.
3. Have things changed since you last signed?
A lot can change from year-to-year. Maybe you’ve gotten a new job with a higher income or have an increased credit score. These can all help you get an even lower rate on your refinance or help you make a larger payment each month.
4. Is your adjustable-rate mortgage about to reset?
If you have an adjustable-rate mortgage, you may want to refinance to a fixed-rate mortgage and lock in historically low rates.
Think Refinancing Is Right For You?
Talk to a mortgage specialist to see if refinancing makes sense.
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