Home Refinancing and Its Benefits

StarBuzz Weekly, Toronto-Author: Roby Smith

Why does home refinancing exist in the first place? Why is there a necessity to refinance your loan? Home refinancing is essential especially if your existing mortgage terms are high. You can refinance it and make it bearable by choosing a better term. Such transaction will help reduce the expenses of paying the loaned amount for the home purchase. To fully benefit from home refinancing, it is important that you choose your lender as well as your new mortgage term carefully.


Here are some benefits of home refinancing:

1. The monthly payment will decrease because of lower rates. When you purchased your home, the rate you were given was based on factors like your credit rating and the state of the market during that time. Your down payment also influenced your loan term to an extent. Your rate could go down if the current rate is low, your credit score has improved and when you are able to make significant down payment. However, in order to enjoy this, you have to check the current market and make sure that your credit standing has turned for the better.

If the current rates are low, you will be able to apply for a new loan and pay off your existing loan. Doing this will enable you to pay off your existing loan. This will also make your monthly payments more affordable.

2. Aside from lowering the rates of your mortgage, home refinancing also gives you the option to shorten the period of your mortgage. For instance, your current mortgage term has a period of 30 years; you can have it paid in ten, fifteen or twenty years, depending on the agreed arrangement. Why would you want to do this? Well, this will help you save on the interest expense. Additionally, this will aid you in building your equity as your payments will go to your principal.

3. Refinancing your loan will also enable you to move from one type of mortgage term to another. If you want to change your adjustable rate to fixed rate, you can do so. Although ARM offers a lot of benefits, it may turn sour when the interest rate rises. Thus, an option to switch to a fixed rate arrangement is ideal as it will remain the same regardless of how the market will change. You will know exactly how much you are going to pay each month.

4. Cash-out refinancing is another benefit you can enjoy. This means that you can refinance your home with an amount higher than your principal balance. What is great about it is that you can take the excess as cash, which can be used for other projects at home. You probably want to update your kitchen or add a new bathroom.

Home refinancing offers a lot of benefits. However, it is important that you study the current market first and look for the best lender with the best term. It is also essential that you have improved your credit score so that it will be easier for you to find better terms.

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