Refinancing your mortgage is a great way to save some money, and with today's historically low interest rates, it's a smart move to consider. When you refinance, you're essentially taking out a new loan to pay off your old one, and ideally, at a lower interest rate, which can lower your monthly mortgage payment. But what exactly are the benefits of lowering your mortgage payment? Below we'll take a closer look at refinancing 101 and why it's beneficial.
Lower monthly payment
The most significant advantage of refinancing is that you can lower your monthly mortgage payment, freeing up more cash each month. This can help you better manage your finances, pay off debt, and even save for retirement or a rainy day. If you can manage to reduce your monthly mortgage payment by $100 or more, you could potentially save thousands in the long run.
Pay off your loan faster
While lowering your monthly mortgage payment is excellent, it's also possible to refinance your loan and keep your monthly payment the same, yet pay off your loan faster. For example, if you have a 30-year mortgage and have been paying for 15 years, you could refinance to a 15-year mortgage and keep your monthly payment the same. This will enable you to be mortgage-free faster, and ultimately save you more money in the long term.
Reduced interest rates
Mortgage interest rates are at historic lows right now, and by refinancing your loan, you could potentially get a lower interest rate, further lowering your monthly payment. If your original mortgage was taken out when rates were higher, refinancing to a lower rate could save you thousands of dollars over the life of the loan.
Consolidate debt
If you have high-interest debt, such as credit card bills, you could use your refinanced loan to pay off this debt. By consolidating all your debt into one monthly payment, you can save money overall and also simplify your finances.
Remove PMI
Private Mortgage Insurance (PMI) is typically required for those homeowners who don't have 20% equity in their home. If you've gained equity in your home over the years and now have 20% or more equity, you can refinance your loan and remove the PMI. This can save you significant money over time.
In Conclusion
Refinancing your mortgage can provide many benefits, including a lower monthly payment, reduced interest rates, and more. Before jumping into refinancing, be sure to shop around for the best interest rates and have a clear understanding of any fees associated with the refinance. By doing so, you can be on your way to saving money and securing your financial future.
