Before getting a refinance mortgage, think about why you need to refinance. Oftentimes people discover they have a little equity in their home and rush to take out the equity for something frivolous instead of putting off that purchase for later when they’ve had the chance to save for it. Instead, the “have to get it now” syndrome sets in and before you know it, another refinance is in the works.
There are other times when a refinance mortgage can be used for more legitimate reasons and might just be the right option for you. Getting a refinance mortgage is a smart move for any home buyer when you can get a lower interest rate or to lower your monthly house payment. Refinance mortgages will also allow you to change loan terms from a long one to something shorter. In this way, you can pay off your refinance mortgage loan much quicker and save more on your overall interest bill.
What Refinance Mortgage Can Do for You
Oftentimes, the first home loan that you have probably closed on high interest rates. Refinance mortgages can lower those rates for you. By taking on a second refinance mortgage, you close the new loan at lower interest rates and pay off the existing loan.
The effect of refinance mortgages on the amount of money you can save is especially big if interest rates are as low as 2% to 1%. Imagine if your existing principal loan balance is $150,000 with an interest rate of 6%. Your monthly payment for this loan is $899.30. If you take on a second refinance mortgage with 5% annual interest rate and a 30-year term, your monthly payment would be $805.23. In this case, the refinance mortgage saves you $93.77 on your monthly payments.
Now, you might think that $93.77 of savings on refinance mortgages is pretty insignificant. But this amount, when accumulated over time, can add up to significant savings. Take the above example. If you use a refinance mortgage calculator, you will be able to see how much interest you’re paying for each loan. The first loan would be costing you $173,754 in interest alone. The refinance mortgage however would only have an interest bill of $139,885. This allows you to save up to $33,869 on your refinance mortgage interest alone.
Besides giving you big savings, refinance mortgages also allows for greater loan satisfaction. If the terms of your current loan are unsatisfactory, you can make the switch and pay off your current mortgage with a refinance mortgage. You have the option of changing your lending company whose services or programs you’re unhappy with. Perhaps you would like to change the duration of your loan? A refinance mortgage makes it possible for you to take on a shorter loan term yet still be able to repay your existing loan.
Tired of receiving several bills at the end of each month? Refinance mortgages can help eliminate that. Getting a second refinance mortgage will allow you to consolidate all your debts into one single monthly bill. One bill means less confusion and less possibility of a bill forgotten or a debt going unpaid. With a refinance mortgage, you can even remove yourself from collections and the harassment of collection agents.
You will need to also consider the fees involved in getting a refinance mortgage. Remember, the banks want to make money off of you every time they see you in front of one of their loan officers so find out what those fees are before you commit to a refinance. A refinance mortgage can be a smart move for you when it is going to save you money on house payments each month and when it is smart business to refinance your home mortgage for future benefit. Just make sure you’re getting a refinance mortgage for the right reasons.
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