Refinancing an existing loan can lower your monthly mortgage payments when you can avail of lower interest rates. Another way to benefit from refinancing is by extending the loan term so you can retain more funds to better cover other expenses.
Though beneficial for your short-term funding, refinancing is not the only way to achieve this. There are two important factors to consider before deciding to refinance – the interest rate for refinancing and the age of your existing loan.
The interest rate is the more obvious consideration since numbers can be compared from here. A small difference such as 0.25 percent between the rate for refinancing and the existing loan, however, may not justify it. Other transaction costs have to be considered and these may easily outweigh the benefit of refinancing. Consulting a mortgage professional can help to make sure all the hidden charges are accounted for and the best comparisons can be made.
If you are looking for refinancing options to consolidate your loans, the age of the loan will be a major consideration. You may check out some of your options here.
Refinancing to lower the monthly payments is particularly good for keeping some flexibility so you can make changes to your loan whenever you need to.
If you currently have a 15-year term for your loan, you can opt for a 20 or 30-year one to reduce your monthly payments. The interest rate will be higher, but you can achieve flexibility this way. The immediate benefit is being able to retain more cash every month. The flexibility here is that you may choose to make additional payments on your mortgage to satisfy it more quickly.
Another way to lower monthly payments is to recover some of the expenses made on a Private Mortgage Insurance. When you are paying a Private Mortgage Insurance (PMI), you may be paying much higher in the long term as this adds to your yearly mortgage (around 1% of the yearly amount). You know you are paying for a PMI when you purchased your home with a down payment of less than 20 percent. Once you have repaid the loan to gain at least 20 percent in home equity, consult your mortgage professional for possible moves to lower the costs.
Apart from the conventional refinancing options, here are some other ones you may qualify for:
Discussing your situation with a professional can let you weigh all the factors. Additionally, more ways to lower monthly payments may be opened up. The options can now come in simpler packages so you can get the best option available for your funding needs.
Looking to refinance a loan? Or simply find tips on how to best reduce payments? Feel free to contact us and we’ll get back to you very soon.