To lower your interest rate
Generally, you should consider refinancing if you can lower your interest rate by a significant amount. That number will vary depending on the cost to refinance and the amount of time you plan to spend in your home. It is possible that you could save a a significant amount of money by refinancing your mortgage.
To switch to a type of loan that is better for you
If you currently have an adjustable rate mortgage (ARM), you may want to switch to a fixed rate mortgage (FRM) in order to lock in a low rate for a long time. Alternately, you may be able to reduce your current payments by switching from a FRM to ARM.
To avoid a balloon payment
Some mortgages have a large payment due at the end of the loan term (usually 5-7 years). You may need to refinance your loan in order to avoid having to pay this “balloon payment.”
To not have to pay private mortgage insurance anymore
Private mortgage insurance (PMI) is sometimes required by lenders if you had to borrow more than 80% of the home’s sale price. If the home’s value has increased, you can use this amount to refinance and stop paying PMI. You may be able to drop your PMI without refinancing, but it is wise to explore the opportunity with your loan officer and determine if you can lower your rate and rid yourself of your PMI.
To cash out home equity
Home equity is often used to finance a remodeling project, college tuition, car purchase, or a vacation. If your home’s value has increased, you can refinance to cash out this extra amount.
To consolidate your debts
If you have a lot of high interest debts, you may be able to save by consolidating these debts into your mortgage. Car Loans, credit cards, second mortgages, and other debts can be included in your refinance.
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