Reasons Behind Refinancing Mortgage

Mortgage refinancing has become a common practice these days. In the old days, when you get a mortgage, you stay with it until it's all paid out. But nowadays due to interest in real estate, investments and credit cards, consumers are becoming more in debt. Refinancing is a popular option for homeowners trying to stay out of the cycle of debt. Here are some reasons why refinancing could be the answer for you.

1. Lower interest rates. Interest rates can make all the difference to your monthly repayments, especially if you have an adjustable rate mortgage. You are probably ok for the first few years when the interest rates are still fixed. But when the rates start adjusting, your repayments could get out of hand. If you refinance at a time when the interest rates are low, you can lock in that low interest rate. This will make your budgeting easier at the same time you will have some extra cash to spend on other things.

2. Cash payout. You might have credit card debts or a Christmas fund that needs some extra cash. This might not be a small about, and usually you can't get your hands on that much cash without having to take out another loan. However when you refinance, you can get a cash payout equal to the amount that you have paid into the mortgage and the current appraised value of the home. You could get that money and even with a lower interest rate.

3. Shorten your loan term. Most common mortgages for from 20-30 years. If you have a fixed rate loan, your repayments will stay the same for the duration of your loan. The longer your loan is, the more interest you will be paying in the long run. If you have extra money, you should pay off your home loan. Refinancing to a lower term mortgage, say from 30 to 15, will also lower the amount you pay for your interest by almost fifty percent. Also if you've already paid off ten years of your mortgage, refinancing will mean that you will pay off your loan five years earlier.

4. Better credit rating. When you first borrowed money for your mortgage, your credit rating may not be so good. Perhaps you were only able to get an adjustable rate mortgage with a slightly higher interest rate. Five years later your credit rating may have improved. Hence you could now qualify for a fixed rate loan. This way your monthly repayments are more stable, even so you should only switch to fixed rate loan when the market rate is low.

There are many advantages to refinancing your mortgage. The important thing is the shop around and wait for the right moment.