Refinancing is a type of financial loan you can use to pay off an existing loan. The money you borrow from a refinancing loan, you use it to close an on-going loan. Mortgage refinancing is simply a secured loan on the same property on which you have an existing mortgage loan. By mortgage refinancing, you can use the money from this new loan to pay off the previous mortgage loan.
But with this simple definition, you cannot guess what a mortgage refinancing can actually do for you. The wide range of amazing advantages of mortgage refinancing will definitely surprise you. Just take a look at some basic points.
1. The first and the most helpful advantage of mortgage refinancing is that it will lower your monthly payment.
For example, suppose that you have taken a home mortgage loan with a 4% interest rate. But if you can lower that interest rate to 2% or even to 3%, it will be a considerable saving for you. Because, as the interest rate lowers, so the total amount of payment also decreases, this, on the whole, lessens your monthly payment.
2. Along with lowering your monthly payment, another important advantage of mortgage refinancing is that it can shorten the tenure period of the loan.
For example, you have a mortgage with a tenure period of 30 years. But now, considering your future financial condition, and economic stability, it seems to you that paying the same amount each month for as long as 30 years will not be possible for you. Now, by a mortgage-refinancing loan, you can transfer the tenure duration of your existing mortgage from 30 years to 15 years, or even to 10 years. This will definitely ensure your future security more prominently.
3. Another advantage of mortgage refinancing is that it provides you with a chance to shift from an FRM to ARM or vice versa.
Typically, Fixed Rate Mortgages (FRMs) are applicable when the current market interest rate is very high. Even with a future security for monthly payments, an FRM is the best option. Whereas Adjustable Rate Mortgages (ARMs) are most appropriate when the current market interest rate is low, or in the case the future security for the monthly payment is uncertain. By mortgage refinancing, you can transfer your FRM anytime to an ARM by just refinancing the previous FRM loan with an ARM refinance loan.
4. Another big advantage of mortgage refinancing comes with the cash-out refinancing option.
Sometimes you pay according to the old estimated equity value of your home and thus losing more money. On paying the amount for the first mortgage, you sometimes pay off such an amount that enables you to re-borrow on that principal. With a mortgage refinancing, you can simply refresh the equity of your home, and use the actual value of your home to save money. A mortgage refinancing, in this case, offers you more money than the current principal balance and thus some extra cash to spend.
5. Mortgage refinancing can also be helpful for debt management. You can use the equity value of your home by cash out refinancing to get rid of debts. As a large mortgage is tax deductible, unlike credit cards, it becomes an extra benefit for you. By this way, you will save money and pay off your debts simultaneously.
6. Last, but not the least, another advantage of mortgage refinancing is that it provides an opportunity to turn off a Private Mortgage Insurance (PMI) payment.
These are a few but not all the advantages of mortgage refinancing. Mortgage refinancing is thus definitely a way out from the burden of high monthly payments or an arm loan. But whenever you consider refinancing the mortgage, scan your personal financial situation and the market rates and then consult with various lenders and compare different quotes. Then, choose the best option to avail the real advantages of mortgage refinancing.
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