Refinancing a loan typically involves paying off a current loan in favor of obtaining a new loan. In the case of home loans, doing this can save you money if you get the right loan at the right rate. If you ditch your old home loan and refinance with a new one that has a shorter term or a lower interest rate, you can save some serious cash that may help you down the road. Usually, finance experts will advise that a 1% savings obtained by refinancing your home loan is worth the effort and the refinance. So, why refinance your home loan? If you’re still wondering, keep reading for five major reasons to consider in your decision making.
1. Consolidate your debts to simplify your financial life
One big reason that you may want to consider refinancing your home loan is that you could refinance to consolidate your larger debts. This action will greatly simplify your financial life. By refinancing and saving some money, you can put that money toward debt your have from high interest items such as credit cards or auto loans. If you can get out from underneath your larger debts that accumulate quicker with higher interest rates, your financial health will be better. This action is often referred to as a cash out mortgage refinance, and it popular among folks who want to take the reins on some of the larger debts they have that make their monthly payments high.
2. Gain access to mortgage equity
Another reason you should take into account when deciding whether to refinance your home loan is that you will gain access to your mortgage equity when you do so. This equity can be used to pay for things such as your child’s future college or trade school education, going back to school yourself, or conducting necessary repairs or remodels on your property. Getting the equity from your mortgage gives you some flexibility in your financial future.
3. Refinance in the case of divorce or separation
Sometimes homeowners will refinance their home loans because an ex-spouse is still included on the original loan documents. It can be a lot simpler to refinance your home loan to get that person’s name removed. This may also be a wise move if you owned property with a relative or business partner you are no longer working with. This way, going forward, all your dealings with your home loan will be easier because your name will be the only one listed on documentation.
4. Save cash to future-proof your home
A great reason to refinance your home loan to reduce your monthly payments and stash away money is that you can use that money to make helpful improvements to your home. Consider thinking ahead and investing in your future comfort by conducting aging in place remodeling. Aging in place is the practice of an individual living out the end of their life in the comfort of their own residence. Some remodeling areas that may be involved in this are installing alternatives to stairs, reducing slick floor surfaces, and adding handles and bars in the bathroom.
5. Consider a fixed-rate home loan
One last reason that you may lean toward refinancing your home loan is that you could acquire a fixed-rate home loan. A fixed-rate home loan has just that: a fixed rate. The interest rate will be locked at a specified level and will not increase in the future. This is a great way to insure your financial stability and freedom will carry forward for more years to come.