A home is an investment property with a potential to bring returns multifold. One way to leverage it is by refinancing it. Refinancing a home essentially means trading the current mortgage with a new one. When refinancing a home, mortgage lenders in MA, who provide new mortgage and refinance loans, use the loan to pay off the remaining payments of the previous mortgage, leaving the homeowner with just one loan that often has a larger principal and lesser interest rate.
There are multiple reasons to refinance a home. A cash-out refinance allows a homeowner to use the equity of their home to get money, while a rate-and-term refinance can be used to get a better interest rate and/or lower monthly payments for the new mortgage. A refinance can also be used to remove or add a person to the mortgage, such as in the case of divorce or marriage. These provisions can be very helpful for homeowners for consolidating their present and future financial conditions.
Here are 5 major benefits of refinancing a home.
Pay off mortgage loan early
Refinancing enables homeowners to reduce their loan term. While a mortgage with a long term provides the borrower time to sort out their finances, it also increases the total amount for payment because of the interest that accumulates over time. For a borrower who has been paying down a mortgage loan for years, refinancing the loan can considerably shorten the term without a significant increase in monthly payments. Shortening the loan term allows them to pay less by avoiding the accumulated interest amount.
Lock in a fixed interest rate
Mortgage loans have two primary types of interest rates which are fixed-rate and adjustable-rate. While a mortgage with a fixed-rate charges a set rate of interest that remains the same throughout the life of the loan, an adjustable-rate mortgage charges a variable rate that starts below current market rate, and then increases over time. Homeowners with adjustable-rate mortgages can refinance their loan with a new one that has a fixed-interest rate to avoid the stage of the mortgage loan where the interest starts to increase, saving them a substantial amount of money.
Secure a loan with a lower interest rate and monthly payment
Refinancing a home allows a homeowner to save a considerable amount of money by getting a new loan with a lower interest rate. The lower monthly payments and interest savings offered by the new mortgage loan enables a homeowner to pay off other debt, save more, and improve overall financial stability.
Procure funds for home improvement or renovation
The equity of a home is built by reducing the remaining loan amount through monthly payments, increasing the value of the home, or the combination of both. A cash-out refinance provides a homeowner the ability to access the equity they’ve accumulated on their home. This equity can be used for a wide range of needs including financing home renovations or improvements, paying off debt, or use it to cover medical, legal, and other large expenses.
Remove private mortgage insurance
Except for VA loans, a borrower pays for private mortgage insurance (PMI) when financing more than 80% of a home’s value with a mortgage loan. This protects the mortgage lender in the unfortunate event that the borrower defaults on the mortgage and the home goes into foreclosure. PMI costs between 0.4% to 2.25% of the mortgage annually and is included in the monthly payment. Refinancing can remove the PMI and all the expenses associated with it.
Buying a home is a big investment that requires meticulous preparation and planning. Since a substantial amount of money goes into purchasing a house even when financing it with a mortgage loan, any provision that helps to improve the terms and conditions of the mortgage can massively benefit the homeowner, and refinancing does just this. It enables a homeowner to trade in their current mortgage loan for a new one with much better terms. It also allows a homeowner to access the equity value of their home and use it for a variety of purposes.
If you’re looking for a mortgage broker for a commercial property or residential property, Miller Mortgage, LLC, is a trusted mortgage broker in MA that provides all kinds of services related to mortgage lending. Turn to their experience and professional expertise for all your home buying needs. Visit their website to learn more about their services.