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Five Smart Reasons to Refinance Your Mortgage

By Tiffany Raiford

Refinancing your mortgage is something many homeowners consider. It's not a bad idea if your home has enough equity to make it worth your while. If you're on the fence about refinancing, consider the pros and cons of doing so and how it could ultimately benefit you. Your current financial situation matters, and refinancing your mortgage can help.

You Pay Less Interest

Refinancing for a lower interest rate is one of the primary reasons homeowners decide to refinance in the first place. While it might not sound like a slightly lower rate is going to make much of a difference in the price you paid for your home, it really will. Even a point lower will save you tens of thousands of dollars over the life of your mortgage.

You Lower Your Monthly Payment

Owing less debt and having fewer monthly expenses is always a promising idea. You'll save money, have more spending money, have more of a cushion in your savings account or just have the peace of mind knowing that your expenses have been lowered. A lower interest rate means you'll pay less each month toward your mortgage, making life more affordable.

You Can Escape An Adjustable Rate Mortgage

Perhaps one of the best reasons for refinancing is to remove yourself from the burden of an adjustable rate mortgage. You never know when or how much your rate will go up. This can cause a lot of financial uncertainty and fear in your life. To help you get out of this type of mortgage, consider refinancing for a lower rate, a lower monthly payment and a fixed rate mortgage.

You Can Afford More

This isn't a reason most people consider when it comes to refinancing their mortgage. However, it's a perfectly acceptable reason. If you refinance for a shorter term because you have the cash to afford higher monthly payments, you can save tens of thousands of dollars in interest by paying bigger payments. This will benefit you more in the long run and it is risky if you aren't certain you have the cash to afford this refinance reason.

Consolidation

If you have debts you'd like to save on and pay off, a consolidation loan might work. You can refinance for what you house is appraised for and use the extra cash to pay off your debts. Your payment might go up (how much depends on the interest rate more than anything) but you'll be paying only one interest rate rather than several rates over the course of several debts.

If you're considering a refinance, you might want to consider if your reasoning falls within any of these categories. It can help you make a decision and it can help you to achieve financial freedom faster if that's what you're aiming for.

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