Prestizia Insurance Blog
Purchasing a house often comes with a mortgage plan that will put you in a big financial commitment for 5 to 40 years. During the period, your financial conditions change and your old mortgage might not be best suited for you anymore. When that happens, it’s a good idea to consider refinancing your mortgage.
Refinancing your mortgage means paying off your old mortgage by changing it with a new and more favorable one. There are numerous of reasons that cause people to make this decision, and here are the most common ones.
Finish the loan earlier
If homeowners have an increase in income and savings, it's normal to consider refinancing their house mortgage with one that has a shorter time period. Switching to a faster mortgage may allow homeowners to pay less overall. However, there are several things to consider such as prepayment penalty and refinancing costs.
Pay lower interest
Interest rates change as time passes, and current rates might be lower than the time you make your initial loan. Choosing a new mortgage with a lower rate will allow homeowners to pay less monthly. If the money you can save from refinancing is bigger than the cost of refinancing, it is a favorable decision to make.
Switching between adjustable and fixed rate
To finance the purchase of your house, you may choose an adjustable-rate or a fixed-rate mortgage. An adjustable-rate mortgage means the interest rate will change periodically based on an index, while a fixed-rate mortgage means the interest rate will stay the same until the end of the mortgage period. Following the index rate will tell you when you should change the type of your mortgage.
Extracting equity of the house
Cash-out refinancing can be used as a form of debt consolidation by using the equity that has been built up. This will increase the loans you have to pay for your house, but you’ll get a sum of money in return. This is a good idea when you are in urgent need of cash or to pay off loans with bigger interest, considering that house mortgages offers lower interest.
Gaining better credit scores
Better credit scores can translate to the availability of loans that has a lower interest rate that homeowners can switch to. You can improve your credit score by making mortgage payments on time or using debt consolidation, where you combine several debts into one big loan with a more favorable pay-off.
If you are unsure whether your refinancing decision will be beneficial or not, an accountant or online calculators can help you decide. Put into consideration that when you choose to finance your house with mortgage, it is usually required for you to insure your home for protection.
At Prestizia Insurance, our mission is to ensure that we protect our clients and offer them policies that they can afford. Learn more about our products and services by calling our agency at (855) 436-6353. You can also request for a free quote by clicking here.