While everyone hopes for the ideal financial situation when they apply for a home loan and buy a new house, this isn’t always how the reality of home ownership works. In some cases, you may not have had as much saved for a down payment as you might have liked or have had to settle for an interest rate that was higher than you wanted.
But luckily, you don’t have to be saddled with the exact home loan situation that you initially agreed to. By refinancing your home loan, you may be able to get much better terms that you had previously. To help you know if this could be a good option for you, here are three reasons you might want to refinance your home loan.
You Can Get A Lower Interest Rate On Your Loan
One of the biggest reasons why people initially start thinking about refinancing their home loan, according to the staff of Investopedia.com, is because they will likely be able to get a lower interest rate than the one they’re presently paying on their home loan.
Keep in mind, however, that a reduction of just a few points likely won’t make much of a difference or be worth your while for refinancing. As a good rule of thumb, you should really only refinance in order to get a lower interest rate if that interest rate will be at least one full percentage point lower than what you’re currently paying. The bigger the difference, the better off you’ll be with your refinance.
To Stop Paying Mortgage Insurance
If you weren’t able to put down at least 20 percent when you first got your home loan, you very likely had to pay private mortgage insurance, or PMI, as a safeguard for the bank who loaned you that extra money.
But once you reach a certain point of equity in your home, namely that 20 percent, Deborah Kearns, a contributor to Bankrate.com, shares that you can refinance your mortgage to get that mortgage insurance eliminated from your loan terms. By doing this, you’ll ensure that you won’t be paying any more into your mortgage loan than you absolutely have to.
To Build More Equity In Your Home
When you refinance your mortgage, you’re essentially shortening the length of your loan in order to get better terms. One of the perks of doing this, according to Zillow.com, is that you can start to build more equity into your home at a faster rate. This is possible by allowing more of your payment to go toward your principal rather than toward your interest, which gets you owning more of your home sooner than you otherwise would have.
If you’ve thought about refinancing your home loan but aren’t exactly sure why you’d want to do this, consider some of the reasons mentioned above to help you make this decision.
Image Credits: Terrah Holly
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