Loan refinancing is an option for many people who have existing lines of credit. At the time that you apply for the loan, you are given specific terms, including the interest rate on the loan. As time goes on, factors can change and you may be eligible for a better interest rate. Here are 10 reasons for you to consider loan refinancing:
1. Your loan has an adjustable rate, and your interest rate may climb higher in the future.
An adjustable rate loan is going to fluctuate over time, which can make it difficult for you to budget and ultimately pay off the loan. If you are in a situation where you can refinance and obtain a fixed rate loan, that is the best option for you. This allows you to plan better for the future.
2. You can get a lower interest rate from your loan provider.
Interest rates might be lower for a variety of reasons. In some cases, federal interest rates are lowered in order to spur the economy and fuel spending across the country. In other cases, you as an individual may have improved your credit score and debt-to-income ratio, allowing you to be eligible for more favorable interest rates. If you can get a lower interest rate through loan refinancing, then you will save a significant amount of money throughout the term of the loan.
3. You want to take equity out of your line of credit in order to have extra cash to complete a project.
Life gets expensive, especially when unexpected things happen. If you have to make a large home improvement project or you need to make a major purchase, you might want to consider refinancing your loan in order to use your equity to off-set your financial burdens.
4. You have a second loan that can be refinanced into one original loan, possibly saving you money.
Depending on the type of loans that you have, you may be able to combine multiple loans into one single loan with a lower interest rate. If you can get a lower interest rate while consolidating your loans, you will be able to pay off your debt quicker while also saving money each month on your payment.
5. You want to have more cash available to you each month in order to begin saving for retirement or another major milestone in life.
Saving can be difficult, especially if you are living month-to-month. If you want to kick-start a major savings account for retirement, college or a wedding, you can consider refinancing in order to use cash to begin a significant savings plan.
6. You have the potential to shorten the term of your loan.
When you purchased your home, you might have felt that a 30-year mortgage allowed you to enjoy a comfortable monthly payment that worked well for your income at the time. However, if you are several years into your mortgage and your financial circumstances have changed, you may want to consider loan refinancing. You may be able to secure a 15-year mortgage and pay off your home in a shorter amount of time, allowing you greater financial freedom in the future.
7. You need to consolidate credit card debt.
Credit cards are notorious for having high interest rates, especially if you often carry a high balance on your accounts. Loan refinancing is an option for you if you want to consolidate your debt, create a quicker pay-off plan and save money on interest each month.
8. Your home has increased in value, and you want to refinance your mortgage.
If you’ve owned your home for awhile, and you have survived the housing market crisis of the last decade, then chances are you are in a better position to refinance now than you were in the past. If you tried to refinance in 2009 or 2010, you might have found that your home value was too low and you did not have enough equity in order to refinance. Today, your home has likely increased in value and you have a better chance of being able to refinance for a more favorable interest rate or for better terms on your loan.
9. You can eliminate your mortgage insurance.
People who purchase a home without putting 20% down have to pay Private Mortgage Insurance, or PMI. This can be costly, especially as it is paid over the course of 15 or 30 years. If you have the ability to refinance and eliminate your PMI, then you can save a significant amount of money each month.
10. You want to purchase an investment property, and you need cash for the down payment.
Real estate has long been seen as an investment opportunity, particularly now that home values are steadily rising across the country. If you are looking to invest in a new property, but need cash for the down payment, you may want to consider loan refinancing. This can help you get the money you need to make that purchase and ultimately enjoy the rewards of the investment.
Loan refinancing is the right choice for many people, but it’s important to work closely with your financial advisor and loan officer in order to determine if refinancing is right for you. There are some situations in which it is not necessary or beneficial to refinance, so you will want to consider every aspect of the process before you make your final decision.
This information was brought to you by BetterLoanChoice
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