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5 Good Reasons To Refinance Your Home

by Marquette Turner Luxury Homes

in Resources, Variety

When you’ve been through the mortgage process once, you might not love the thought of doing it again. The paperwork can be off-putting, as can the idea of getting the house looking its best for a valuation. Because of that, a lot of people miss out on the benefits they could gain by switching things up. 

Here are five reasons why you should seriously consider refinancing the mortgage on your home.

Save Money By Extending The Term

It’s common that when people take out a mortgage, they want to repay the loan as quickly as possible. They therefore take the shortest term that’s affordable to them, because they’re worried about owing thousands to the bank. That’s not always a great idea for the here and now.

If you’re missing out on holidays, or finding you can’t always afford the things you want to buy, extending your mortgage term could be the answer to the problem. If you have a healthy credit status, most mortgage lenders will allow you to extend a term all the way to your expected retirement age. Let’s look at a specific example. If you were 25 years old, and borrowed $250K for your mortgage over 25 years on an interest rate of 4.75% (that’s the average in the USA), your repayments would be $1,425 per month. If you added ten years to the term, and got the mortgage paid off at the age of 60 instead of 50, those repayments drop to $1,222 per month. That’s an extra $200 in your wallet, and you’re still on track to own your home by the time you retire.

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Lower Your Interest Rate and Save Money That Way

If you’ve had your home and mortgage for a few years, chances are your financial situation is different now to what it was when you took the mortgage out. You’ve paid off some of the balance against your home, and if you’ve kept up your repayments your credit situation is likely to be better, too. That means you might be able to get a better deal based on your current circumstances.

Lending money to you is a gamble by the bank. Not a straight up casino style gamble – they leave that to Vegas Slots– but they give you a deal based on how likely they think you are to pay the money back in full. Your age, your previous credit history, and the amount you owe against the value of your home are all taken into account. If your credit status has improved, and you owe less against the value of your home, you’re a lower risk to them than you used to be. Therefore they’ll usually be happy to reflect that in the rate of interest you pay.

Going back to the earlier example, let’s say that your interest rate is currently 5.75% on your 25 year, $250K mortgage. That means your repayments are $1,573. If you could renegotiate and get it down to 4.75, you’d be nearly $100 per month better off, and you’d still be on track to pay the mortgage off over the same period of time. Doesn’t that sound great?

Raise Some Money To Pay Off Other Debts

The interest rate on your mortgage is almost certainly lower than the interest rate you’re paying on any credit cards you might have, as well as store cards or personal loans. You might even have a second loan against your home, with a higher interest rate than your current mortgage. Some people don’t consider their overdraft to be a form of credit, but it is. If you have sufficient equity in your home, and a credit status to support it, you could save money on your other debts by borrowing more against your home to pay them off.

An average interest rate on a credit card is 15%. That’s even if you have great credit. If you’ve had trouble with money in the past, it might be even higher. Let’s say you have $10,000 owing on your credit card balances. If you paid them off over ten years with an interest rate of 15%, that would cost you $161 per month. If you raised that $10K against your home, the repayments would only be $105 per month. You just saved over $50 per month, and your credit card balance is clear.

Borrow Money Against Your Home Instead of Taking Another Loan

While we’re talking about interest rates being better on mortgages than they are on credit cards or personal loans, why would you want to finance a holiday, or a new car, or just about any big purchase with credit card borrowing if you could raise the money through your mortgage lender instead? If there’s enough equity there, and you’re in a good credit situation, it would be much cheaper to increase your mortgage balance than it would to make a large purchase on credit elsewhere.

If you’re looking to get married, take a once in a lifetime holiday, or pay for some home improvements, you’d likely be better off doing it through your mortgage in the majority of circumstances. You might even be able to do it without extending the term of your mortgage. Plus, dealing with one monthly repayment is a lot easier than staying on top of multiple repayments to different lenders every month.

Nail Down Your Interest Rate

Most brand new mortgage deals come with a fixed interest rate. That means the rate doesn’t change for the first few years, and you always know exactly what you’ll be paying month after month. It gives you consistency, and helps you to budget. After the fixed rate period ends, you move onto your mortgage lender’s ‘variable’ rate.That rate changes to reflect what’s going on in the world of finance. It can admittedly go down – but it can also sometimes go up.

If rates go up, that can be devastating to your monthly budget plan. If you’re used to having a certain amount of money left over after the bills are paid, and then a sudden change in the interest rate starts eating into that, it can have serious consequences for your lifestyle. Most of us prefer to know exactly what we’re dealing with financially every month. Moving onto a brand new fixed rate with your lender gives you peace of mind, and keeps you in control.

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