Nowadays, there seems to be so many options for mortgages. Although the total term of the mortgage may be amortized over twenty-five or thirty years, the home loan is typically re-signed or eligible for refinance at regular intervals. The time between due dates can be as long as five years, and as short as one year. By knowing that there is the opportunity to refinance a mortgage, and by knowing the exact date, those who have mortgages on their homes can actually budget more efficiently, and can impact their future financial well-being. Without doubt, renewing a mortgage has merit for the payer, and there are many benefits of refinancing a home loan.
Since refinancing a home loan is important, we have discussed the top main benefits of refinancing a home loan.
Shortens the Term of the Mortgage
Because you know when you are allowed to refinance your home loan, you can actually incorporate into your personal budget a time frame that best suits you paying off the mortgage entirely. For example, if you originally signed a mortgage contract that was amortized over twenty-five years and you receive a raise at work, you can now increase the payments, allocating the raise money to the mortgage, thereby decreasing the time required to fulfill the home loan requirements. In reality, your home will be paid off, and clear of title within a shorter period. Likewise, if you have paid off other loans such as a car loan or school loan, that money can be redirected to the home loan when refinanced.
Decreases the Amount of Mortgage when Paying a Lump Sum
Much like reallocating new available monies, if you receive a bonus at work, or you have been able to save a lump sum amount, you can apply those monies to your mortgage at the time of refinancing. This allows you to reduce the amount you actually owe which in turn saves you considerably on interest over the long term, and permits you to reduce the number of years involved in the amortization.
Allows “Gambling” on the Interest Rate
If economic indicators predict that interest rates are bound to fall, refinancing a home loan would be hugely beneficial, especially if you keep the payments at the same amount. In this scenario, your payments will be going to more of the principal instead of interest. Even if you decide to lower your payments with the new schedule, you can use the extra money saved from the decrease in interest rates to buy or invest in something else.
Allows You to Review Your Options
Agreeably, if you were required to lock in your home loan for the duration of the amortization period, you would never be able to react to other factors in your budget or economic situation. Further, being able to refinance a home loan on a specific date allows you to review your options and find a competitor with whom to sign. His offer may be much better than your existing contract.
Concluding, the ultimate goal of most individuals is to own their homes as quickly as possible. In order to build greater equity in a shorter amount of time requires the ability and the permission to refinance their home loans.