Refinancing sounds like a nice idea if you think about the amount of money you can save per month; that should get you a nice car, new furniture, a family vacation, or a fatter savings account. However, it is not as simple as that. Though the low interest rate is tempting, it still doesn't mean that it's the right option for you.
Here are 4 reasons that refinancing should be good for you according to Realty Times:
To lower your interest rate
"One of the best reasons to refinance is to lower the interest rate on your existing loan," said Investopedia.
"Historically, the rule of thumb was that it was worth the money to refinance if you could reduce your interest rate by at least 2%. Today, many lenders say 1% savings is enough of an incentive to refinance."
People who have gone through the path of refinancing find it beneficial that theyconsider doing it again. "If they refinance now, they could lower their rate by 1 percent," said Diane George, founder of Vault Realty Group, a brokerage in Oakland, California, in Money magazine. "For example: A $450,000 loan with a 4.75 percent interest rate refinances into a 3.6 percent interest rate and will have a savings of an estimated $300 a month."
To shorten your loan term
Interest rates have been historically low that many homeowners have considered refinancing to cut the length of their loan from a 30-year fixed-rate to a 15-year term. Without a huge jump in the monthly payment, homeowners have a chance of cutting their loan term to nearly half depending on the rate.
To get a fixed-rate mortgage
According to experts, refinancing is a good idea for any homeowner with an adjustable loan who wishes to get a fixed rate every month. "While ARMs start out offering lower rates than fixed-rate mortgages, periodic adjustments often result in rate increases that are higher than the rate available through a fixed-rate mortgage. When this occurs, converting to a fixed-rate mortgage results in a lower interest rate as well as eliminates concern over future interest rate hikes," said Investopedia.
To use your home equity to pay off debt
You could get a nice chunk of equity in your home when it has risen in value at the time that interest rates have dropped and you've been making your payments. It would be wise to tap that equity to pay off debts particularly when your credit cards and store accounts' interest rates have higher rates compared to your refinancing.
