- A primary motivating factor leading to refinancing is seeking lower interest rates. If you have a fixed rate mortgage at 7 percent, for instance, and now you can refinance at 4.5 percent, refinancing allows you to take advantage of the lower interest rate. You may be eligible for lower interest rates because rates have fallen or because your credit score has improved.
- You may also want to refinance to change the term of your home mortgage. With longer mortgages, you have lower monthly payments, but more interest charged over the life of the loan. With shorter mortgages, you have higher monthly payments, but less interest charged over the life of the loan. For example, if you took out a 15-year mortgage, but are now struggling to make your monthly payments, you may want to refinance to take out a longer mortgage to lower your monthly payments.
- Another motivation for refinancing a home mortgage is to tap into the home equity that has accumulated in your home over time. When you refinance, you can tap into this increased equity. For example, let's say you started out with a $150,000 mortgage on a home worth $180,000. Over time, the home's value has risen to $200,000, while the mortgage balance has been paid down to $120,000. That means you have $80,000 equity in your home.
- You may also want to refinance to change from a fixed-rate mortgage to an adjustable-rate mortgage, or vice versa. Having a fixed-rate mortgage is beneficial when interest rates rise because your rate is locked in and your payments will not change. However, if interest rates fall, having an adjustable-rate mortgage benefits you because your rates will fall without requiring you to refinance. For example, if you signed an adjustable-rate mortgage, but interest rates are beginning to rise and you expect them continuing to rise, you may consider refinancing to a fixed-rate mortgage.
Lower Interest Rates
Changing the Home Mortgage Length
Cash-out Refinance
Switching Mortgage Types
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