Refinancing a mortgage refers to replacing an existing loan with a new one after paying a portion of the first loan. People refinance their mortgage for a number of reasons but ignore the fact that they need to pay 3% to 6% of the loan’s principal. Therefore, it is important to determine your need of refinancing the loan and consider the benefits and drawbacks before replacing the existing loan. Here are some reasons to refinance mortgage in Maryville.
For Securing Lower Interest Rate
Securing lower interest rate helps you decrease the size of your monthly payments along with potentially increasing the equity you have in your home . Previously, it was believed that you should refinance your loan if you could save at least 2%. But now, the experts believe that saving even 1% of your loan interest is a good incentive for your home equity and personal savings.
Reducing the Loan Term
Being debt-free is always the goal. Paying off your mortgage in a shorter term will give you more funds in the future, while eliminating that house payment. If the interest rate has reduced and your finances allow then you can refinance mortgage in Maryville to pay the loan in shorter period of time, it may be a very profitable option. For example, the loan is 4% for 30 year fixed mortgage on a property of $100,000. If you refinance your mortgage to 15 year term, the interest may be reduced by half a percent or more, reducing the overall interest you will pay out in those 15 years. Even with a slightly higher payment, you will become debt free faster. In some cases, the difference could be as small as $10 to $20 per month.
Shifting to the Other Type of Mortgage
There are two types of mortgages i.e. adjustable mortgage and fixed mortgage. In adjustable rate mortgage, the interest rates are often higher depending on changing economic dimensions. But it does not affect fixed mortgage. If you can afford to pay back your mortgage on monthly basis then shifting from adjustable rate mortgage to fixed rate mortgage is a good way to save more on interest.
On the other hand, if the interest rates fall periodically and you have signed up for fixed rate mortgage then converting from fixed to adjustable rate mortgage is profitable, provided the trend of falling interest rates continues.
Factors to Consider When Refinancing Mortgage
To refinance mortgage in Maryville, compare current interest rates and your finances to find out your affordability.
Consider the length of time you are going to live in the house. If you are expecting to move out in a few months or 1 to 3 years then avoid refinancing mortgage as paying 3-6% of loan principal, processing fee, agent fee and other related fee would equal the total amount of loan you will pay before moving out.
The original mortgage either decreases or increases your credit score. Typically, you can only apply for lower interest rate if your credit score has improved after taking out the original mortgage.
In a nutshell, if your move to refinance mortgage in Maryville reduces your monthly mortgage, increases home equity and shortens the loan term, then it is a good option to go with. Visit here for more information.
