It is not surprising that many are choosing to refinance their current mortgage because economic uncertainty is very apparent, and homeowners are subject to some of the highest mortgage interest rates in history. While refinancing may not always lead to a better financial condition, there are a number of reasons why it might still be a good strategy to consider. These reasons are mentioned below.
Lowering Monthly Payments
The main reason to refinance a mortgage is to lower the monthly payments by having a new mortgage with lower interest rates and better terms. When determining whether or not to refinance, it is important to consider the current mortgage type, and the current rate trends in the mortgage market. An individual with an adjustable-rate mortgage (ARM) may find it beneficial to refinance to a fixed-rate mortgage (FRM) if market rates are rising, as their ARM rate could exceed those currently offered on an FRM. On the other hand, an individual with a fixed-rate mortgage may want to refinance to an adjustable-rate mortgage if interest rates are dropping, rather than being stuck with the higher fixed rate.
Obtaining Cash from Home Equity
To obtain cash for a specific project or to pay off a specific debt is another popular reason for homeowners to refinance a mortgage. For example, a homeowner could pursue a home equity loan or cash-out refinance to obtain a lump sum of cash based on the equity of the property. This is often done to pay for important home repairs, college tuitions, large amounts of credit card debt, or monthly living expenses during periods of unemployment. Regardless of the reason, obtaining a lump sum of cash is the second most popular reason to refinance a mortgage.
More reasons why you have to refinance your mortgage.