The reasons for refinancing a home are many and varied. Refinancing involves the rearrangement of the original loan terms in order to accomplish a certain goal.
The vast majority of mortgages are entered into with no thoughts of refinancing. But certain circumstances may necessitate a change in the original arrangements.
Changing Mortgage Terms
Some of the more common reasons for refinancing include extended mortgage terms, which usually means lower monthly payments. Simultaneously, you can get shorter mortgage terms in order to save in interest costs.
Refinancing a house also allows you to obtain additional cash for renovation or expansion. Or to change between a fixed rate and an adjustable rate mortgage, you can refinance as well.
Refinancing a Home Due to Life Changes
Unfortunately, changing life circumstances can make it difficult to keep up with mortgage payments. A decline in income or an increase in overall expenses both impact your ability to pay for a mortgage.
That doesn’t mean you have to let the mortgage go bad, rack up late fees, or lower your credit score. It may be best to consider refinancing a home.
When you refinance, the original mortgage is essentially rewritten. This allows you to extend the mortgage term so that the monthly payments are lower and therefore more affordable.
On the other hand, increasing income may also make it possible for a mortgager to make bigger monthly payments and to pay off their mortgage in a shorter period of time.
While this does not necessarily require refinancing, if you make this adjustment, the interest rates offered may be lower. In this case, you can pay the mortgage off faster while the total interest charges will be less.
Refinancing is an excellent option if you have lots of free equity in your home and need extra cash to make home improvements or to expand. Also, if it becomes beneficial to switch between a fixed rate and an adjustable rate mortgage throughout the life of the mortgage, then refinancing may be the best way to do so.