Refinancing your house loan can be a smart financial move. In addition to lowering your monthly payments and interest rates, mortgage refinancing provides you with additional money that you can use to pay off debt or save for retirement. Let’s take a look at the top five reasons why you should refinance your mortgage:
Lower interest rate
When you refinance your mortgage, you can save money on the interest rate you pay. The reason is that interest rates are always changing. When you apply for a new home loan, the lender will give you an “interest rate quote” based on their current pricing. That interest rate quote may or may not be the same as what they end up charging when they actually fund your mortgage. The difference b/w the two numbers is called the margin or spread.
The key here is that newer loans are more likely to have lower rates than older ones because lenders compete against each other to win business from borrowers like yourself.
Reduced monthly payment
One of the most obvious benefits of refinancing is that you will reduce your monthly payment. This means that you can save money on each month’s mortgage payment and therefore use that extra money for other things.
For example, a reduction in monthly payments can allow you to pay off your debt faster, which is good for financial reasons but also because it reduces stress levels and gives you breathing space from a large debt burden.
No need to pay down mortgage faster
Another great benefit is that you do not need to pay off your mortgage faster. This can be a huge relief as some people may feel like they are wasting their hard-earned money on something that does not bring them any rewards. If that sounds like you, then refinancing is your best option.
You can use the extra money for other things, such as paying down debt or saving for retirement. And if those are still not enough reasons to get a loan to refinance, consider this: mortgage refinancing can save you thousands of dollars in interest charges over time.
Tax-deductible interest
You may be able to deduct the interest you pay on your mortgage from your taxes. This means that if you itemize deductions, you can deduct the part of your mortgage payment that is for interest. You can also deduct points and fees paid at closing.
How much of a deduction you receive depends on several factors, including how much income tax you owe and whether or not there is any remaining debt after refinancing. If this is the case, then under most circumstances, you will lose some deductions when refinancing due to having less total household debt.
The ability to cancel PMI payments
If you are tired of paying for PMI, it is possible to have your PMI canceled. This can be done by getting a new mortgage with more equity in the home or by refinancing with your current lender and paying off some of the principal balance on your loan.
As per experts like SoFi, “Find the mortgage refinancing option with the interest rate and monthly payments that match your goals.”
All in all, a home loan refinance is a great way to make sure your mortgage stays affordable if you can afford to pay more each month than what you’re currently paying. You never know what could happen in the future and if interest rates go up again, this may be your only chance at locking them in at these low levels.
