Refinancing (paying off an old loan by getting a new one) is a decision that many people make at many points in their life. This article discusses the top four reasons why it would be prudent for you to refinance.
1. Reduce the Duration of Your Loan
Economic upheavals have taught people that they cannot take the future for granted by imagining that they will still have a stable job a decade from now. This harsh reality has compelled people to begin looking for ways to have a more financially stable future.
One way to put a measure of stability into your future is to reduce how much debt you have. Refinancing allows you to reduce the duration of your long-term loan (say, from 30 years to 15 years). If interest rates are low at the time of refinancing, you will have an added benefit of paying less each month.
2. Switch to Better Interest Rate Terms
If you got a loan basing on an adjustable interest rate (you agreed that your interest rate should be adjusted each time there is a change in prevailing rates) and interest rates have been climbing very frequently, it is wise to refinance.
Getting a new loan on a fixed rate basis (interest payments do not change once you get the loan) will save you from paying higher interest in the years to come. If interest rates keep dropping, it is also wise to refinance from a fixed rate loan to an adjustable rate loan.
3. Get Equity to Buy an Asset
A very good reason to refinance your mortgage is to get money (equity you have accumulated in your house due to paying down the mortgage) so that you can use that money to buy an asset, like rental property. The cost of refinancing will be more than justified by the income you get from the new asset.
4. Consolidate Your Debts
You can also refinance in order to consolidate your debts into one loan. This is a particularly smart move if some of the debt you have is high interest debt such as credit card debt. You will save in the end if you refinance in order to pay off your other debts. This is because mortgages usually have lower interest rates than interest paid on credit card debts.
Remember that any loan is a double-edged sword that can sink you as easily as it can give you financial relief. You will be one of those who benefit from refinancing if you choose to refinance your mortgage based on any of the reasons in the discussion above. If you have more questions, talk to experts such as Brokerhouse.