With the New Year here, it’s common to set goals, like losing a few extra pounds or adopting a new hobby. It can be a perfect time to evaluate our lives and look for areas that we can improve. What can often go overlooked is improving our financial situation. For homeowners, refinancing your mortgage can lead to saving thousands of dollars over time. Below we have five reasons to refinance your mortgage.
Lower Your Interest Rate
The main reason why homeowners decide to refinance their mortgage is to lower their current interest rate. With historically low interest rates, now is a great time for homeowners to look into refinancing their loan. You may also qualify for a lower interest rate if your credit score has improved from the time you first bought your home. A lower interest rate can lead to major savings over the life of your loan.
Refinance to a Shorter Term
Along with lowering your current interest rate, refinancing your loan can also shorten your term. A conventional fixed-rate loan typically is offered in 15 to 30 year terms. If you refinance to a shorter term, you may be able to pay off your loan years sooner.
Get Rid of Private Mortgage Insurance
Unless you put 20 percent toward a down payment, chances are you are paying for private mortgage insurance (PMI). PMI can vary from 0.3 percent to roughly 1.5 percent of the amount financed according to the Bankrate website. In the time since purchasing your home you’ve likely paid down a portion of the debt and hopefully, the value of the home has increased. If the current amount owed is less than 80% of the home’s appraised value, you may be able to refinance and get rid of that PMI.
Another reason to refinance your mortgage is to tap into the equity under your roof. With a cash-out refinance, you can use the equity that you’ve built up over time to pay for things of your choosing. Some common reasons for a cash-out refinance, is to consolidate high-interest debt, get money to pay for college tuition, start a business, finance home improvements and more.
Convert an ARM to a Fixed-Rate Mortgage
Adjustable-rate mortgages, or ARMs, are home loans that interest rates vary up or down over time. While they can be beneficial, they can also be less predictable than fixed-rate mortgages. If you are seeking a bit more stability in your home loan, refinancing an ARM to a fixed-rate mortgage may be a good idea. With a fixed-rate mortgage, your payments will stay the same year to year, allowing you to budget accordingly.