How can Mortgage Refinancing Help me?
 | Refinancing your mortgage onto a new, lower interest rate than you currently have can create a number of advantages depending upon your current arrangements. Regardless of whether you're looking to free up cash flow to ease pressure on a tight budget through lower mortgage payments, make better use of your current mortgage installments, consolidate debts via a cash out refinance or just get your home loan paid off faster, a refinance down to a lower mortgage rate can help you achieve any or all of these. It's important to keep an eye on todays mortgage rates however, as they can change rapidly and of all the factors that influence how viable a refinance is, the interest rate is probably the most important. |
Mortgage Refinancing to save interestOf the different resonas that people may want to refinance, cutting down their mortgage payments is one of the most common. Simply stated, if the interest
rates available today are significantly lower than you're currently paying then you may be able to save a lot of money through refinancing. As interest rates current sit at are
historically very low levels at present, it's likely that you can make significant interest savings. Some lenders will charge a "break fee" for refinancing your home loan. It's worth ckecking this out well before looking too far into refinancing as if the fees are too great it could leave you with little long term benefit - it's also worth considering if you can afford to pay these fees outright or if you'd have to add them to your loan - if you have to do this it can add to the overall interest you'll be paying over the life of the loan. If you can secure a lower interest rate without too much in terms of fees, you should at least think about refinancing - reducing the interest on your mortgage and cake you payment much more efficient and get your loan paid of years quick without having to raise the installment amount. If you're considering refinancing your mortgage loan, take a look at our should I refinance my mortgage? page. | Refinance Rates
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Cash Out Mortgage Refinance
A
cash out refinance is when you refinance your mortgage to a higher loan
amount than you currently have. The difference between your old loan
amount and the new amount is the "cash out" portion of the refinance
and is effectively like cash in your hand. It can be used immediately
for any purpose that you like. Click here for more information on Cash Out Refinance. A Cash Out Refinance unlocks the built up equity in your property and gives you access to it, but without the higher interest rates that Equity Loans or Home Equity Lines of Credit typically come with.
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Refinancing to Pay off your Mortgage More Quickly
There are a few ways you can use a Refinance to pay your mortgage off more quickly:
1. Secure a lower interest rate. This will mean that for every $1 or mortgage payments you make you will pay off more of the debt and less interest. Even a modest change in interest rate can result in your mortgage being paid off years sooner if you keep your payments the same.
2. Increase your repayments. When you refinance, you can choose to increase your repayments and thereby shorten the mortgage term. You may have changed jobs or got a promotion, be renting out a bedroom or your partner may have returned to work. Regardless of the reason why you've now got more disposable income, refinancing your mortgage will allow you to step your repayments higher and knock years off your mortgage term. Combined with a lower interest rate, this is the ideal "1, 2 Punch" to get you debt free in record time.
3. Get rid of your PMI/Bad credit Terms. If you have better credit now that you did when you took out the mortgage initially, you may be able to achieve a still better interest rate, as you have demonstrated a history of good payments and are now considered less of a credit risk. Likewise if you have built equity in the property you may no longer be required to have PMI through your lender. Dropping this alone will create huge savings annually and allow you to pay off the loan years faster.
Refinancing to Reduce your payments
Just as you can refinance to up your repayments, Refinancing can be used to bring them down as well. The easiest way to achieve this is to secure a lower interest rate, and adjust your payments to compensate.
This will mean that you are paying the same amount off your actual debt (it will still be paid off in the same time) but you will pay less interest, thereby dropping your repayments. Also, if your credit score has improved or you have built equity you may be able to avoid paying PMI or get rid of any "high risk" interest premiums you may have been initally charged. Finally, if you have previously been paying off your mortgage quite aggressively you can look at refinancing to extend the loan term. Paying your mortgage off over 30 years instead of 15 or 20 can drop the payments on it considerably, especially if you can get a lower interest rate than you currently have.
