Things to Remember when Refinancing Your Mortgage Loan

Why Refinance?

There are different reasons to refinance a mortgage loan, such as to obtain a lower interest rate, to shorten the term of the loan, or to consolidate debt. It can be advantageous to refinance when you have a mortgage loan with a variable interest rate and are scheduled for a readjustment that will result in larger monthly payments, or when you have a loan on which you are paying only interest, and after a certain period of time you will start amortizing the principal, at which time your monthly payments will go up significantly.

A reduction in the interest rate means lower monthly payments, provided you keep the same term for the new loan. The savings in financing costs over the life of the loan, due to a lower interest rate, can be substantial.

The same concept applies for consolidating debt, that is, you can save money by requesting a new loan at a lower interest rate to pay off the balances of other mortgages with higher interest rates. Debt consolidation would be the case when, for example, you have an original mortgage to purchase the home, and later another mortgage to make an addition or improvement to the home.

When you refinance a loan in order to pay it off over a shorter term, the monthly payments will be higher, but you will end up paying off the loan in less time, you will save a considerable amount in interest, and you will accumulate more equity in your home in less time.

How Long Do You Plan to Stay in Your Home?