Home Loan Refinancing, Reason & Advantages of Refinancing & Refinancing Guide

You may opt for a mortgage refinancing by taking a new home mortgage and using some or all of the earnings to repay an existing mortgage on your home. The main purpose of mortgage refinancing is to acquire a lower interest rate. Mortgage refinancing also lowers monthly payments by extending the term of a loan. The following are the usual benefits you will enjoy by refinancing.

·          Reducing monthly payments from a higher fixed rate to a lower fixed rate

If the prevailing interest rate is 7.5% and you switch to a 6.5% rate, you stand to save 1% on the mortgage. This 1% saving can accumulate to over $50,000 on a $200,000 mortgage spread over 30 years.

·          Improving monthly cash flows with lesser payments

We all face a shortage of cash after moving into a new home. Refinancing can help you switch to a loan with a lesser interest rate. The best way is to switch in to an adjustable rate program where the rate of interest is fixed for three to ten years.

·          Eliminating variable payment changes of adjustable rate mortgages (ARMs) by switching to a fixed rate program

The interest rates of one-year adjustable rate mortgages (ARMs) are liable to fluctuate substantially. By switching into a fixed rate program at a time when interest rates are lower, you can make your cash flow steady for three, five, or even seven years by refinancing.

·          Withdrawing funds from the equity in a home

You may refinance 75% to 80% of the current value of the home if you have owned it for one year or more. You can use this extra cash for home improvements, college education, or debt consolidation.

·          Shorter loan terms

By refinancing into a shorter term loan while keeping the loan payment stable you can save tens of thousands in interest by reducing the term.