When you buy a house with a mortgage, you can keep the loan until you pay it off or get a new loan. Getting a new loan to replace your existing loan is called refinancing. Refinancing is not always necessary, but it can be a smart move in many situations. People refinance for many reasons, and here are three of the most common goals of refinancing.
1. To Lower Your Payments
The first goal people have with refinancing is to lower their payments. When you refinance, you get a new interest rate on your loan. If the rate is lower than your current rate, your payments will decrease. If you are struggling to pay your bills, refinancing to have lower payments might be a great idea. People who refinance also do this to save money. When you have a lower interest rate, you pay less in interest. Paying less in interest helps you save money, and you can save a lot of money if you can get a significantly lower rate.
2. To Shorten Your Loan
The second goal of refinancing is to shorten your loan. If you took the loan a 30-year loan 10 years ago, you will still have 20 years remaining. If you can afford to pay a little more per month, you could refinance to a 15-year loan. Refinancing to a 15-year loan will cut five years off your loan. Instead of owning the house in 20 more years, you will own it in only 15. Many people refinance to achieve this goal.
3. To Acquire Cash Out of Your Equity
The other major goal people have when refinancing is getting cash out of the equity they have in their homes. If you have a lot of equity in your house and need some cash for any reason, you can acquire the cash by refinancing. Getting cash out when refinancing is called a cash-out refinance. If you choose this option, your mortgage balance will increase, which means you might have higher payments. You will also have cash, though, which you can use for any purpose. If you want to refinance to get cash out, you might want to examine the equity you have in your home before proceeding.
These are three of the most common goals of home refinancing. You might want to refinance for one of these reasons or another reason. If you have questions or want to learn more about home refinancing, talk to a mortgage lender today.