Why You Should Consider Mortgage Refinancing

Mortgage refinancing allows you to replace your existing mortgage with a new one. The new mortgage comes with different terms. Thus, mortgage refinancing often allows you to negotiate better mortgage terms than existing ones. Below are some of the ways you can benefit from mortgage refinancing.

To Switch Mortgage Types

Financial institutions offer various forms of mortgages. For example, you can opt for an adjustable-rate mortgage (ARM), where interest rates change depending on prevailing market rates. Another option is a fixed-rate mortgage (FRM), whose interest rate doesn't change.
In most cases, you stick to the same type of mortgage for its term. However, refinancing allows you to switch from one type of mortgage to another. For example, you can switch from an ARM to FRM if you plan to own your home for the long term. That may be helpful since ARM rates usually exceed FRM rates over the long term.

To Lower Interest Rates

You don't have to switch mortgage types to enjoy lower rates. You can refinance your mortgage and enjoy lower rates without switching to a different type of mortgage. A lower interest rate effectively reduces the overall cost of your mortgage.
Say you have an FMR with an interest rate of 5%. However, the current market rate is 3.5%, which means you are technically overpaying your mortgage. You can refinance your mortgage and negotiate with the lender for a reduced interest rate. Ensure that the reduction is worth the effort before you take the plunge.

To Lower Monthly Payments

The monthly mortgage payments can create a significant dent in your disposable income. Luckily, refinancing can help you lower your monthly payments and free up some money for alternative uses.

You can lower your mortgage payments in two main ways. First, you can negotiate for reduced interest rates. This strategy helps since interest payments form part of the monthly payments. Secondly, you can lengthen the repayment term. Consult a mortgage expert to help you understand the pros and cons of different mortgage terms before refinancing your mortgage.

To Stop PMI

Private mortgage insurance (PMI) protects lenders against losses from mortgage defaults. Lenders often ask for PMI from borrowers they deem at high risk of default. For example, you are likely to pay PMI if you have an unusually low down payment.

Unfortunately, PMI increases the overall cost of your loan. You can refinance your mortgage to get rid of PMI and lower your mortgage cost. Note that refinancing to get rid of PMI is only possible once you have built good home equity.

To Benefit From Home Equity

If you have paid a considerable chunk of your mortgage, you can refinance the loan to cash in on the built-up equity. Maybe your home needs repairs, and you don't have alternative sources of renovation money. You can cash in your home equity and use the money to renovate the home. Just ensure that you will afford the increased loan repayments.

To Shorten Mortgage Term

Lastly, you can also refinance your mortgage to shorten its term. Maybe you have an ARM, and the interest rates have significantly fallen. If your financial situation has remained the same, you can use the extra money to increase your monthly repayments. You can also shorten your mortgage term if you have received some financial windfall.

Negotiate for the best possible terms if you want to refinance your mortgage. Shop for refinancing deals from different financers to ensure you get the best deal. Talk to Cornerstone Residential Mortgage for help in getting the best possible mortgage deal. We will walk you through the process and help you get a customized package.