Refinancing a home mortgage can be beneficial in certain situations. It’s important to identify when this makes sense when determining what steps you should take.
Naturally, every situation is going to be unique, so you need to consider the details of yours carefully. But below are a few times when it may be wise to refinance your mortgage.
If you can get a better interest rate
One thing to watch for is when interest rates fall. Refinancing may mean that you pay far less in interest, and more of your money can go toward the principal. This can either reduce your payments or give you the chance to pay the loan off more quickly—if you can keep paying the same amount you were at the higher interest rates.
If you can reduce the length of the loan
In some situations, you may also be able to refinance into a shorter loan, such as turning a 30-year mortgage into a 15-year mortgage. If your financial situation has improved, such as if you got a new job with a higher salary, then this may be a great way to reduce your financial obligations in a long-term sense.
Using home equity
Finally, if your home has gone up in value, you may be able to use this equity to your advantage. Say that you’ve been paying off your loan for five years. You may be able to refinance into a mortgage that technically costs more, but you can get cash out to use for home improvements, upgrades, maintenance and things of this nature.
As you can see, it all depends on what your goals are and what your financial situation looks like. Just be sure you know what options you have and what legal steps to take.