When most people think about refinancing, they think about securing a lower interest rate—and the lower monthly payment that usually accompanies it. However, while lower payments are certainly nice, there are additional benefits you might want to consider.
Changing the term – Refinance a 30–year mortgage to a 15–year one and depending on how far along you are in your payments, you may be able to significantly reduce the total interest you’ll pay over the life of the loan. At today’s rates, your monthly costs may not even increase.
Moving to a fixed rate – If your current mortgage is an adjustable rate product, meaning the interest you pay on the loan periodically changes. You can eliminate the risk of payment increases by refinancing into a fixed rate loan with a set, permanent interest rate.
Cashing in equity – If your home is worth at least 20 percent more than what you currently owe on your mortgage, you may be able to refinance and convert some of that equity to cash. While this isn’t a decision to make frivolously, it can make financial sense in some situations. Talk to your mortgage lender and financial advisor about yours.
Consolidating multiple loans – Whether you bought your home with an 80/20 mortgage program or have a first mortgage plus a home equity loan or line of credit, consolidating through a refinance can reduce your overall monthly payment and simplify your budget.
Settling a divorce – If you own a home jointly with your ex, a refinance will allow you to turn that joint obligation into a single person’s responsibility. This may be preferable to selling the home if one of you wishes to continue to live there.