5 advantages of a mortgage refinance – in addition to lower monthly payments

Added benefits to lock in low rates now. (iStock)

As the number of coronavirus cases increases this summer, interest rates remain low. For those with stable jobs who bought their homes before the pandemic, now might be the perfect time to take advantage of low rates in refinance a home loan.

Not sure about getting a mortgage refinance before rates go up again? Not sure if now is the best time to refinance? Check available rates on Credible and consider this: although refinancing comes with borrowing and paperwork costs, refinancing actually has many benefits besides saving money on interest and lowering your monthly payment.

What are the advantages of refinancing a mortgage loan?

1. Accelerated payment

An owner refinance a $400,000 30-year mortgage at 4.5% versus one at 3.35% and reduced the monthly payment by $345. Instead of putting savings into a savings account, the homeowner continues to pay the old mortgage payment. By using the refinance savings to pay down the home, the homeowner in this example is reducing the mortgage term by seven years and five months with money in his budget that he already has.

See how much you could save with a refinance today by visiting Credible.

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2. Build equity faster

Refinancing from a 30-year loan to a 15-year mortgage will significantly increase the monthly payment, which discourages many homeowners. While paying more each month isn’t fun, refinancing for a shorter loan significantly reduces the amount paid in interest over the life of the loan. For a homeowner refinancing a $400,000 mortgage from 30 to 15 years, the interest savings (less closing costs) would be $100,000.

Refinancing for a shorter loan means you accumulate more equity in the house at a faster rate, which is a good idea if you plan to use the home equity in the future for major purchases or to eventually move into a larger home.

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3. More predictable costs

If you took a adjustable rate mortgage (ARM) When you first bought your home, you probably did so because the low interest rate at the start of the loan term was very attractive. The good news is that the rates being as low as they are nowhomeowners can lock in a low rate for the life of their loan without worrying about interest rate increases as markets continue to shift due to the pandemic.

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4. Debt consolidation

A cash-in refinance is a lesser-known type of mortgage refinance product that can help homeowners leverage the equity in their existing property in the short term, while taking advantage of today’s low interest rates.

For example, a homeowner owes $350,000 on a 30-year mortgage for a home worth $400,000. A homeowner can refinance a 30-year mortgage for $400,000 and receive $50,000 in cash after paying off the first loan. The 30-year term starts again and the payout may be higher, but now they can use the money however they see fit. Many homeowners use this tactic to “borrow” against their home’s equity at the lowest interest rate, then use the money to pay higher interest. credit card debt.

With most credit card interest rates above 17%, debt consolidation at 3 or 4% is the smartest money move.

5. Discontinuing Private Mortgage Insurance (PMI)

Most conventional mortgages allow homeowners to drop the PMI once they have reached 20% equity in the home, but this is not allowed on FHA loans. For homeowners with FHA loans, refinancing would be the only way to get rid of the monthly PMI payment.

Homeowners in areas where values ​​are rising rapidly should take advantage of refinancing to increase the amount of equity in their home. If a homeowner has 10% equity on a $350,000 mortgage, but their house is now worth $400,000, they’re actually sitting on 22% equity, just based on the current market value of the house. House.

Refinancing the home at the new value would allow the homeowner to get a lower interest rate, but also remove the monthly PMI payment each month. Credible can help you compare offers from multiple mortgage lenders at once to find a loan estimate with the best rates.

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Is it the right time to refinance?

Since interest rates fluctuate with the market, it is best to lock in low interest rates now before they rise. That’s why so many people are refinancing now instead of waiting to see what happens with the pandemic in the fall and into 2021.

Before you restructure your mortgage, it’s best to shop around for rates first to determine what you might qualify for with your credit score. It can be done quickly and easily through a site like Credible. After shopping around for rates, do your homework to first estimate whether the savings from refinancing outweigh the cost of loan fees.

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Living in unprecedented times means everyone should explore every possible avenue when it comes to putting more money back in their pocket. With what lies ahead so unknown, every dollar counts.

Aurora J. William