5 Benefits of Refinancing an Existing Home Loan
Refinancing a mortgage is a process, wherein the borrower has the option to pay off an existing home loan to obtain a new home loan with lower rate of interest, or opt for a cash-out that can be used for personal or business needs. Many people often get skeptical about refinancing a mortgage, thinking the process to be full of hassles such as completing paperwork, paying a refinance fee and many others. Refinancing, on the contrary, is a valuable proposition for the borrowers, if approached the right way. That said, the blog post discusses five benefits of refinancing an existing home loan. Take a look.
1. Lower Rate of Interest
Refinancing an existing home loan helps in lowering the monthly mortgage payments as interest rates get lowered. The percentage drop in the interest rates depend on the loan amount; however, you can expect a drop anywhere in the range of 0.75 percent to 1.5 percent. Though refinancing increases the life of the loan, but the savings that come with lower interest rates make refinancing worth giving a shot.
2. Option to Cash Out Home Equity
The value of most homes increase with time, a factor that can be utilized for some extra income. In refinancing, borrowers get a golden opportunity to cash in on a significant portion of home equity and borrow an amount more than the initially owed amount. Borrowers get the difference paid in cash, which can be used in eliminating outstanding debts such as credit card bills or to fulfil other financial commitments.
3. Zero Private Mortgage Insurance
Most home loan choices in Texas or elsewhere in the US requires borrowers to pay a Private Mortgage Insurance. The Private Mortgage Insurance protects the lenders in many loan programs against a borrower default. As the borrower continues mortgage payments for years, the balance on the home decreases and therefore, borrowers can eventually stop their PMI payment by refinancing a mortgage. The final authority to stop the PMI payments is the lender.
4. Loan Consolidation
Refinancing merges two loans to a single loan. Using a first and second lien loans to purchase a home with a low down payment used to be a standard practice before. Usually, the rate of interest on the primary mortgage or the first loan is much higher than the second loan, however, this is not the case with refinancing. Consolidation of loans, on the flipsyde, helps you to negotiate a lower rate of interest than having to live with two or more separate loans.
5. Fixed-Rate Mortgage
Many borrowers go for an adjustable rate mortgage in the beginning to capitalize on extremely low interest rates for a short period, such as 3 to 10 years. In reality, the rate of interests on adjustable rate mortgages can fluctuate in the long run, causing an overall increase in monthly mortgage payments. Though you can’t switch to fixed-rate mortgage with a low interest rate in between, refinancing makes it possible.
Most borrowers shy away from refinancing, thinking it to be an unnecessary hassle. Though refinancing involves intricate paperwork along with a refinancing fee, the upside makes the option. Before you think about refinancing, you must consider the pros and cons or else it may do more harm than good. That said, you must consult a professional mortgage company to help you refinance your existing loan.