Before considering a mortgage refinance, one of the best questions to ask is what are the benefits. Knowing the benefits will help you to determine, if refinancing your mortgage is a good financial decision. While there are many small benefits of getting a mortgage refinance, such as getting a new lender if your current one is difficult to work with, the two main benefits of a mortgage refinance are you can save money and you can receive extra cash. While not every mortgage refinance allows you to get extra cash, many are obtained for the purpose of saving money.
You Can Save Money
Mortgage Refinance Guide Sections:
You can save money through a mortgage refinance by getting a lower interest rate (Reed 145). A lower interest rate will save you money by lowering the amount you have to pay in interest. For example, a $200,000 15-year mortgage with a 10% interest rate is $42,823.09 more expensive than one with an 8% interest rate.
When you look for a mortgage refinance, you must check to make sure your new interest rate will be lower than your current interest rate. There are three ways that your new interest rate will be lower than your old interest rate: market interest rates have fallen, you have a better credit score than you had in the past or you switch from a fixed-rate mortgage to an adjustable-rate mortgage.
The other way to save money through a mortgage refinance is by getting a shorter-term length. Having a shorter shorter-term length will decrease how much you have to pay in interest. You Can Get Extra Cash
Not every mortgage refinance allows you to receive extra cash; however, if you get a cash-out mortgage refinance, you could walk away with some extra money. A cash-out mortgage refinance is when you get a new mortgage for more money than you need to repay your current mortgage (Reed 152). Any money you borrow that exceeds the amount you need to pay off your current mortgage and any closing costs for your new mortgage, is given to you to use as you please. That extra money can be used to for home improvements, college tuition or credit card debt. Before getting a cash-out mortgage refinance, be aware that you are using the equity in your house to take out the extra money. If times get tough and you need extra money, you will not be able to depend on your home's equity for cash.