Refinancing your home loan may be something that you’ve considered doing. There are many banks and other lending institutions that are always pushing their customers to apply for a refinance. If you’re still on the fence about refinancing your home loan, here are a few key instances where you should go for it.
Interests Rates Are One to Two Percent Lower
One of the most beneficial reasons you can opt for refinancing your home loan is to lower your interest rate. It’s true that home mortgage interest rates change over time. Factors like your credit score increasing can also make you eligible for lower interest rates than when you initially got your home loan. If you can find a lender who is offering one or two percent lower than your current mortgage, then it’s time to take the plunge.
You Have an Adjustable Rate Mortgage
Many homeowners fall into the trap of an adjustable rate mortgage. The low initial payments make it seem like a dream come true when compared to fixed rate mortgage payments. However, adjustable rate mortgages only offer a short-term fixed rate. Usually, after two years, the fixed payments turn into variable ones. In most cases, the variable rate will be much higher than your fixed, introductory rate. This can skyrocket your mortgage payments. If you’ve fallen into this trap, it’s time to refinance and get a fixed rate mortgage this time.
Your Second Mortgage Costs Almost the Same as Your First
As the years go by, you pay down your mortgage loan. Sometimes the market will look in your favor, and the value of your house increases. This can allow you to have a lot of equity in your home. You may have decided to use that equity to take out a second mortgage on your house. While you may not have paid much attention, or you were just desperate at the time, your second mortgage rate is just as high as your initial mortgage. It’s time to refinance and get that mortgage payment lower.
You Can Afford a Shorter Mortgage
If you look at mortgage rates, many banks will offer lower mortgage rates for shorter loans. If you’re like most people, you started with a 30-year loan. As your career expands, you’re likely to make more than you used to. If you can afford to switch to a 15-year mortgage payment with a lower interest rate, then it’s time to do so.
There are many instances where refinancing a home is a great idea. The above are four of the most common that people run into. Just be sure that your refinance is going to be helping your financial situation and not damaging it.