When interest rates plummet, it's a good time to think about refinancing mortgages. Those who financed their homes in times of economic stability may have a higher interest rate than is offered by banks and lenders. Refinancing your home may alter your payment, give you a shorter loan term or even allow you to obtain a more secure loan than you were able to obtain before. Talk to your financial adviser or banker about why refinancing your home would be beneficial to you and your financial future.
Lower Payment
After you've held your mortgage for a few years, you've paid off a substantial amount of your home loan's principal. You can lower your monthly payment by refinancing and extending the terms of the loan. For instance, if you've had a mortgage for five years and have 25 years left, you can extend the loan back to 30 years and have the smaller amount that you owe on your home stretched out to create a lower monthly payment. Note that this will also cause you to pay more interest on your home over time.
Better Rates
You may have financed your home with a moderate to high interest rate. While it was the lowest interest rate that you could qualify for at the time, you may at some point be able to refinance with an even lower interest rate. A lower interest rate means a lower monthly payment, and less interest paid on the home over time. According to the Federal Reserve Board, it's a good idea to refinance when interest rates are at least 2 percent less than the interest rate you are currently paying.
Secure Mortgage
An adjustable rate mortgage can give you lower payments when the interest rates are low, but if interest rates skyrocket, so do your monthly payments. After ARMs are financed, some homeowners are less than thrilled with the changing payments. Refinancing your home to a traditional fixed rate can give you better financial security by always knowing what your payment will be.
Faster Pay Off
If your living circumstances have changed, and you find yourself in a position where you are able to pay more on your mortgage each month, you can refinance your loan so that you are paying it off faster. Switching from a 30-year fixed mortgage to a 15-year fixed mortgage can secure you lower interest rates and a savings of around $130,000 of interest on a $200,000 loan, according to the Federal Reserve Board. You'll also own your home outright in half the amount of time.
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