5 Benefits of Refinancing That Could Save You Thousands

5 Benefits Of Refinancing That Could Save You Thousands

If you are struggling to make your monthly mortgage payments or your existing mortgage interest rate is higher than current market rates, you may want to consider refinancing your home.

While this process isn’t without fees and risks, it can be what keeps some people in their homes or betters their finances in the long run. Read on to learn whether refinancing might be right for you.

What is refinancing?

Refinancing is the act of taking out a new mortgage on your home. According to the Federal Reserve, “When you refinance, you pay off your existing mortgage and create a new one. You may even decide to combine both a primary mortgage and a second mortgage into a new loan.”

Reasons to consider refinancing:

1. Lower interest rate

If the market has changed and rates are now lower than when you first got your mortgage, or if your credit has become much better since then, you can refinance to get a lower interest rate.

Because you will be paying less in interest each month, the amount you owe each month will go down, too.

2. Go from ARM to fixed rate

Do you currently have an adjustable rate mortgage (ARM)? Signing up for this type of variable loan when you’re shopping for a mortgage is appealing because the rates are usually the lowest.

However, when the market changes, you may be in for an increase. If you have good credit, you can refinance to switch from an ARM to a more stable fixed rate.

3. Change your term

When refinancing, you can change your term to longer or shorter depending on your needs. If you go up to a longer term, such as 30 years, your monthly payments will go down.

However, you will end up paying more interest in the long-term. For some people, that’s worth the trade-off.

You also can refinance to a shorter term, which will have a lower interest rate, but your monthly payments will likely increase.

4. Cash out on equity

If you have an emergency expense or need to consolidate credit card debt, you can do cash-out refinancing to access the equity you’ve built in your home.

“When you refinance for an amount greater than what you owe on your home, you can receive the difference in a cash payment,” according to the Federal Reserve.

5. Get rid of PMI

When you purchase a home and put less than 20 percent down, lenders usually require private mortgage insurance (PMI) to protect themselves in case you default on the loan.

If your home value has increased and the balance you owe has decreased, you may be able to have your PMI canceled by refinancing.

Advertiser Disclosure

BadCredit.org is a free online resource that offers valuable content and comparison services to users. To keep this resource 100% free for users, we receive advertising compensation from the financial products listed on this page. Along with key review factors, this compensation may impact how and where products appear on the page (including, for example, the order in which they appear). BadCredit.org does not include listings for all financial products.

Our Editorial Review Policy

Our site is committed to publishing independent, accurate content guided by strict editorial guidelines. Before articles and reviews are published on our site, they undergo a thorough review process performed by a team of independent editors and subject-matter experts to ensure the content’s accuracy, timeliness, and impartiality. Our editorial team is separate and independent of our site’s advertisers, and the opinions they express on our site are their own. To read more about our team members and their editorial backgrounds, please visit our site’s About page.