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Many people are hearing about refinancing their home loan these days. Whether it is at their bank, on a television ad, or maybe they have overheard others talking about it. Either way, refinancing a home mortgage now is a very popular option for many homeowners due to favorable interest rates and a recovering housing market. Many homeowners though do not understand mortgage refinance or the advantages it can provide. Here are some of the most popular reasons to refinance.
Lower the Monthly Loan Payment
Many homeowners have loans with higher interest rates than what is available now. Some homeowners, especially those who bought in the housing "boom", got into an ARM (adjustable rate mortgage) loan and have seen the low initial interest rates go up. Refinancing so that the monthly mortgage payment amount is lowered is by far the most popular reason homeowners take action. While closing costs and fees can add up, getting a lower interest rate will usually outweigh these costs. If a homeowner is able to reduce their interest rates by even 1%, a mortgage refinance may benefit them and slash their home loan payments.
Get a Different Loan Type
A lot of homeowners are in a situation where changing the type of loan they have may save them money. Typically, homeowners want to get out of an ARM and into a more stable fixed rate mortgage. A lot of ARM loans had low interest rates to start, but have increased over time, which is the nature of the type of loan. Most of them now have higher interest rates than what is available from a standard type fixed rate mortgage. Homeowners who are planning in staying in their home for awhile will usually benefit from getting out of an ARM and into a more traditional fixed loan. However, for homeowners who are planning on moving or selling their home in the next few years may benefit from doing the opposite and getting into an ARM. A lot of ARM loans offer lower closing costs, and low initial interest rates. Many times, these rates do not change for the first few years, than they begin to adjust. If a homeowner is able to get out of their home before the interest rates increase, they may save themselves a lot of money.
Get Cash Back from the Homes Equity
Their are some homeowners who have, over the years, built up equity in their home and want to use it to their advantage. This is where a cash back mortgage refinancing comes in. Using this method, homeowners are able to, for example, refinance a loan for $ 50,000, that they owe $ 20,000 on, and would pocket the $ 30,000 difference. Typically, these loans are cheaper than loans from banks and personal loans. Some homeowners use this money for a remodel that further increases their homes worth, while others use it to make big purchases or pay down other bills. Be careful though. This type of loan can easily cause long term financial problem if it is not thought through.
Pay Off the Loan Quicker
Some homeowners are fortunate enough to have gotten themselves into a better financial situation since they purchased their home. Whether through a lucky windfall, more disposable income, or a bigger salary, some homeowners may want to pay off their biggest debt, as soon as possible. Typically, a homeowner will refinance into a mortgage that allows them to pay off their mortgage sooner, sometimes shaving 10 or 15 years off the loans repayment length. The monthly payments are usually higher, but the overall savings are massive. This method also allows the homeowner to build equity in their house sooner should they need it in the future.
Mortgage refinancing is not going to be a solution for everybody, but for a lot of people, it will provide many advantages to their current loan, and will save them money. Each person has a unique set of goals, and financial situation that will make certain home loan refinance options more beneficial than others.