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Money SmartsAugust 27, 2018
There are many reasons homeowners choose to refinance their mortgage. Here are some of the better ones!
Many lenders claim that even a 1% savings on interest rates should be reason enough to refinance. Reducing your interest rate can help you build more equity in your home sooner and decrease the size of your monthly payment, saving you lots of money.
If you have a mortgage with a really high interest rate, refinancing can help you pay off your loan in half the time without changing your monthly payment much.
Over time, adjustments can increase the rates on Adjustable Rate Mortgages (ARMs) until they top the going rate for fixed-rate mortgages. When this happens, switching to a fixed-rate mortgage is a good idea.
When refinancing is a bad idea:
What is a cash-out refinance?
Some homeowners refinance to tap into their home’s equity. To do this, they’ll need to refinance with a bigger loan and stay within the loan-to-value threshold of their loan program.
Only choose this option if you can afford the loan terms, and preferably, will use that money to increase your equity.
How much will it cost?
Refinances aren’t cheap. You’ll need to pay broker fees, closing costs and more. A typical refinance will cost anywhere between 3-6% of the loan’s principal.
If you don’t plan on staying in your home for that long, or you can’t afford to wait until then to recoup your losses, refinancing may not be a good idea.