Most homeowners know that if their monthly cash flow ever gets tight, they can apply to refinance the mortgage on their home to lower their required monthly payment. Even people who have no dire need to lower their monthly payment have always heard that it is a savvy move to see if you can lower the interest rate that you currently have. Not everyone is aware of the other benefits that a refinance can bring them.
By Kaz Andrew from Edmonton,Alberta, Canada (A Grand Home In The Eaux Clares) [CC BY-SA 2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons
Cash in Hand
Aspiring home remodelers or people in overwhelming amounts of debt can try accomplishing their goals by capitalizing on the equity in their homes. If you have enough equity, you can withdraw cash for whatever you want from the equity in your home. Some people take money out to update or completely renovate their homes while others wipe out all their existing debt (which can greatly help out with monthly cash flow!)
Pay Less for Your Home Long Term
Saving thousands of dollars over the life of your mortgage loan is another great reason to refinance. This one usually comes with a sacrifice, but not always. Shortening your loan down to a 15 year fixed or 10 year fixed loan will get you the absolutely best interest fixed interest rates that the market has to offer. You are paying off the same amount of money in a shorter amount of time, however, so usually your monthly payment will be going up. Once you have paid your home off, though, you will have saved a large amount of money that would have gone to interest. Sometimes the savings can even be as much as your current mortgage balance!
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Prevent Payment Shock
Payment shock on your home mortgage can be one of the worst feelings a homeowner can experience. People who got into Adjustable Rate Mortgages (ARM's) started off with very cheap monthly payments. ARM's have a fixed period at the beginning of the loan typically lasting in 3, 5, 7, or 10 year increments. After that period is over, the interest rate will adjust with to the current market. This can lead to a skyrocketing mortgage payment that homeowner's are not prepared for or able to handle. Fixing in your ARM with a fixed mortgage rate can prevent a lot of stress or even worse down the road.
Get Rid of the PMI
A lot of homeowner's see an extra fee known as PMI or MIP on their mortgage statement every month without giving it an extra thought. Private mortgage insurance will be an extra fee you have to pay if you do not have enough equity in your home. Mortgage Insurance Premiums are for people who have FHA loans. These people might be paying mortgage insurance even though they have more than equity in their homes. People who have PMI can look at reevaluating the value of their home in order to get rid of PMI. People with great credit can also look into LPMI (Lender-Paid Mortgage Insurance) programs. Some lenders offer these programs to people with little equity but high credit in order to bulk up their portfolios.
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All of these possible benefits are savvy financial moves that do not require the interest rate to go down. Homeowner's who already think they have a low rate should still look into their options. They might be surprised to see what opportunities await.