If your home loan's interest rate is lower than the existing market interest rate, you might believe that you can't refinance. At the very least, you might believe that it can't do you any good. The truth is, even if you refinance with a rate that's slightly higher than what you are currently paying, you may still save more than you would think by refinancing your home loan. Here are a few reasons why you should still consider refinancing your mortgage.
Revise Your Mortgage Term
If you refinance your mortgage, you'll change the repayment term of the loan. For example, if you're currently paying on a 30-year mortgage, you can shorten the loan term by refinancing to a 20-year or even a 15-year term. Since interest compounds over the life of the loan, shortening the payment term may save you money even if it increases your interest rate for that period. If you can afford the increased monthly payment, the savings over the life of the loan may be well worth it.
If your goal isn't a higher payment in exchange for a shorter loan term, you can ease the strain on your budget by refinancing to a longer term loan instead. The longer term will save your immediate budget, even if it means you'll pay more in the long run.
Eliminate Your Adjustable Rate
If your initial mortgage loan has an adjustable rate, refinancing may give you the opportunity to lock in a fixed rate for the long-term. Even if the fixed rate is slightly higher than your current adjustable rate, you may still save over time. If the adjustable rate increases significantly over the life of the adjustable rate mortgage, you'll find yourself facing significant monthly payments. On the other hand, refinancing to a fixed, slightly higher rate gives you a flat payment every month that could save you over time compared to increased adjustable rates.
Eliminate the Mortgage Insurance
If you've paid down the principal of your mortgage enough, you may have enough equity in the house to eliminate your mortgage insurance. If you're carrying 20 percent equity in your house, you should have enough equity to drop that premium completely. Talk with your mortgage lender about whether or not you have enough equity to eliminate your mortgage insurance.
As you can see, even if your current mortgage interest rate is lower than what the market rate is, you may benefit from refinancing your loan. Consider these opportunities for reducing your costs and talk with your lender today. When it comes to your refinance home loan choices, your lender can give you the most up-to-date information.
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