Posted on: 14 May 2021
Loans can be beneficial when applied at the right time and used appropriately. If you have been thinking about paying off your existing mortgage using another loan, you might want to examine your situation and understand if home refinancing is appropriate for you. Before you approach your lender, look at the following situations and reflect on them.
1. When You Want a Shorter Loan Term
Does your current home loan have an incredibly long payment period attached to it? Times change from the moment you applied for the existing mortgage. You might start earning better, or your spouse decided to help you pay the loan. In this case, the 20 or so payment years attached to your loan might seem too long.
Generally, the longer the payment period is, the higher the accrued interest rates are. If you would like to shorten the home loan payment period, you could consider paying it off with a new loan that takes a shorter time to repay.
2. Change of Terms Between Adjustable to Fixed Rates
Another sensible reason that would make you want to apply for home refinancing is changing between fixed and adjustable loans. The former option typically accrues lower interest rates during the first few years. Although lenders allow you to start with low repayment amounts initially, they often tend to increase the amounts along with the rates over time.
On the other hand, fixed-rate loans have constant interest payments throughout the repayment period. This shields you from paying surprisingly high rates after the adjustment period. Depending on your situation, you may choose to switch between the two in search of a better payment arrangement.
3. When There Is a Need to Renegotiate Your Home Loan
Loan rates tend to fluctuate, mostly due to changing economic policies, fluctuating credit scores, and the addition of acquired property. It makes more sense to refinance your home loan if the initial rates you qualified for when purchasing the house are significantly higher than what you could secure today.
You could save a lot of money by refinancing if your situation has changed considerably. You might want to speak to an expert when analyzing your break-even point and lifetime income costs to understand if the refinancing option is a smart move.
Refinancing your mortgage is a great idea if you can benefit from it in terms of monetary gain. It also gives you a chance to build more equity quickly. If you are in any of these situations discussed above, you could be a good candidate for home refinancing.Share