N.E.O. Home Loans - Reasons to Refinance Your Mortgage

Reasons to Refinance Your Mortgage

There are times when it makes sense to refinance your mortgage. That time may be when interest rates drop or if you just want to get cash out from the equity in your home. Whatever the situation is, it's your decision whether or not the time is right for you. You can read more below about the different scenarios where most home owners decide to refinance.

Consolidating Credit Cards and Other High Interest Debt

The difference between credit card debt, other high interest debt and a mortgage can mean hundreds, if not, thousands of dollars. Typically the interest you pay on credit card debt is not tax deductible where the interest you pay towards your mortgage is usually tax deductible. Not only are there the tax benefits but the interest rate on your mortgage is usually significantly lower than your credit cards. Using the equity to consolidate your high interest debt could possibly lower your overall monthly payments by a few hundred dollars if not more. Always consult a professional tax advisor before making any tax deductions and just praying for the best.

Lower Your Monthly Mortgage Payment

Dropping your interest rate by as little as a half of a percent may drastically drop your monthly payment depending on how much you owe. Anything more than half of a percent is an added bonus. You could be using that money for other things like paying off other debts, saving for retirement, or paying for a much needed vacation.

By refinancing you can also change the term, or length of time, you pay on your mortgage. It is possible that if you refinance to a shorter term, your monthly payment could increase even if you get a lower interest rate. The reason isn't because you are paying more interest; it's because you are paying more principal. This means that at the end of your term you will have paid a significant amount less in mortgage interest. This could save you tens of thousands of dollars in the long run. You can lower your 30 year mortgage to a 20 year term or even a 15 year term.

Getting Cash From the Equity in Your Home

The equity in your home can almost act like a savings account that you can access by a cash out refinance. Typically, people who cash out the equity in their home use the cash for home improvements, paying for college, or even paying off high interest debt. It's your money, so you decide what you want to use it for.

Refinance From an Adjustable Rate to a Fixed Rate

If you currently have an adjustable rate mortgage it's very important to know what interest rates are doing. Are they rising or are they falling? Your adjustable rate has the possibility to adjust higher than the current fixed rates. When this happens it is definitely a good time to refinance into a fixed rate mortgage.