There are many different reasons as to why you may want to refinance your mortgage. The following is a list of reasons why you may consider to refinance your mortgage, but whichever reason applies to you will depend on your individual financial goals.
1. Get a lower interest rate
If interest rates have gone down since you took out your original mortgage, you may be able to obtain a mortgage with a lower rate and doing so will also lower your monthly payment. You will have to be aware that this may reset the term of your mortgage, but a shorter term can be arranged to match your specific needs.
2. Improvement to your borrower profile
If you have cleaned up your credit and improved your credit score since got your mortgage or the value of your home has risen, you may want to consider a refinance as these may qualify you for a lower interest rate.
3. Change your mortgage term
If you are looking to pay down your mortgage more quickly, you may want to refinance from a 25-year fixed to a shorter term, such as a 15-year fixed. Mortgages with shorter terms will have higher payment amounts, but also have lower interest rates.
Conversely, you may consider refinancing to extend your mortgage term. Doing so would cost more in interest over the full amortization of your mortgage, but it would also make the payments a lot lower.
4. Change your mortgage type
If you are currently in a variable rate mortgage, you may be considering switching to a fixed rate mortgage if you think interest rates are going to rise. Alternatively, if you are in fixed rate mortgage, you can switch to a variable rate mortgage if you want some payment relief or if you feel you are over paying.
Another common situation that can arise is if you are in an interest-only mortgage that is nearing the end of its term. Refinancing into a more conventional mortgage at this point can save you renewal fees and provide a lower interest rate. On the other hand, you could consider refinancing from a conventional mortgage to a interest-only mortgage. Doing this can improve your monthly cash flow, allowing for other expenditures or taking advantage of investment opportunities.
5. Accessing cash
Refinancing is a great way to utilize the equity from your home. Many clients chose to do this for home renovations, purchasing an investment property or investing in the stock market.
6. Buying someone out
You can also refinance if you need to remove or add someone to the title or to the mortgage. In many cases where marriages and partnerships break down, you may need to buy-out another party’s share of the property; refinancing can provide access to the cash to do so.
7. Consolidate multiple mortgages
If you have multiple mortgages on your property, you can refinance to combine them into one. This can also be a great way to lower your interest rate, as many second mortgages have much higher interest rates associated with them.
8. Consolidate other debt
If you have other debts, such as high interest credit cards that are carrying balances every month or high interest vehicle payments, you may want to consider refinancing your mortgage. The interest rate you will be able to get on your mortgage will be a lot lower than the other debts previously mentioned here, allowing you to save money on the interest you were paying before. This can also greatly improve your monthly cash flow, easing the pressure of multiple payments every month.
9. Special offers
If a specific lender is offering a special promotion for a limited time only, you may consider refinancing to advantage of it if it makes sense for your needs.
10. Safety net
If you are currently in a position where you could qualify to refinance your home, there is no guarantee that you will be able to do so in the future. Your circumstances may change and you run into some financial hardship causing you to become unable to qualify at that time. Taking advantage of a refinance will you can more easily qualify would also let you negotiate better terms for your mortgage as well.