Are you considering refinancing your home, but not sure if it's the right choice? If so, it will help to know some pros and cons of refinancing so that you can make an informed decision.
Reasons To Refinance
In general, you are going to want to refinance when there is a financial advantage to do so. Some people view this as lowering the monthly payment that they make each month, even if it means paying more money over the lifespan of the loan. Others may refinance to reduce the amount of money that they owe over the entire loan. It really depends on what benefit you are trying to get out of it.
Some people refinance once they have 20% equity in their home and they want to get rid of the private mortgage insurance that they are paying. Some mortgages will require that you pay PMI for the life of the loan, and the only way to get rid of it is with refinancing. As home values have increased, you may find yourself suddenly having more equity than you thought, and refinancing can help you drop those PMI payments.
Refinancing can be a great way to leverage the equity of your home if you need to borrow the money. One of the cheapest ways that you can borrow money is through a mortgage, and it may make more financial sense to refinance than to borrow money in a different way at a higher interest rate
Reasons To Not Refinance
It may not always be a good idea to refinance if you want to shorten the length of your loan. Going from a 30-year mortgage to a 15-year mortgage can speed up when you pay off the home, but you can also do the same thing by making additional payments towards the principal balance. If you have a goal of paying off your home early, then look at the amount of money you'll save by simply paying more into your mortgage on a regular basis.
Refinancing is not as simple as switching to a new loan either. You must go through the underwriting process and be approved for a loan as if you are getting a brand new one. This means that you have to pay closing costs, and you'll start over on your mortgage's amortization schedule. The initial payments you make will be made mostly of interest, and it will take a while for the regular payment to go toward the principal.
For more information, contact a local lender that can help you with real estate refinancing.