If you’re thinking about refinancing your home, it’s important to first do your research and weigh the pros and cons of refinancing. While there are a few disadvantages to financing your home, the pros usually outweigh the cons and can actually help you out in other areas throughout your home in the long run.
At Landmark National Bank, we’re committed to educating our customers about everything that comes with home loans and home ownership. Here are four benefits of refinancing your home mortgage and how to decide if it’s the right choice for you.
What does it mean to refinance your home?
When you refinance your mortgage, you’re essentially trading in your current home mortgage for a brand new one. It’s very similar to the home buying process and usually takes 30 to 45 days. Refinancing your home is an excellent way to leverage your investment and comes with many benefits that help you out in the long run.
Benefits of Refinancing Your Home
1. Shorten Your Loan Term
Most home mortgages start with a 30-year home loan. When you refinance your home, you are able to change your loan term to a 15- or 20-year fixed-rate mortgage. Shortening your loan term can help you pay your loan off faster and can help you save money on interest rates over time.
2. Lower Interest Rates
One of the main reasons homeowners choose to refinance is to get a lower mortgage interest rate. When you applied for your original home loan, you might not have had the best credit score or the value of your home may have been lower at the time. If your credit score has increased, if the value of your home has increased, or if the mortgage market is simply better now than it was before, you may be able to reduce your mortgage monthly rate when refinancing.
3. Lower Monthly Payments
With a lower mortgage interest rate comes lower monthly payments. With all the money you save from your mortgage payments, you can build your savings accounts, pay off other debts, prepare for retirement, and more.
4. Cash-Out Options
When you refinance your home, some borrowers have the option to cash out and have access to some of the money earned from your home’s equity. You can essentially use this money for whatever you need. Most people use these funds to send their children to college, pay off large debts and expenses, or pay legal fees.
One of the most common ways borrowers use cash-out funds after refinancing is for home improvement projects. With the extra money, you can make repairs and renovate your home, which may ultimately increase the value of your home in the end.
Drawbacks of Refinancing Your Home
After considering all the benefits that come with refinancing your home, it’s also important to note some of the drawbacks. One of the most significant drawbacks is the refinancing costs. Because you’re basically taking out a new home mortgage, you’ll have to pay the same closing costs and fees you paid the first time you took out a mortgage for your home. In general, expect to pay anywhere between 2 and 6 percent of the amount you borrowed.
Another drawback is the possibility of a lower credit score. Your credit takes into account the length of your credit history, so when you refinance, you’re changing that length. You might see a hit to your credit score when you refinance.
Finally, refinancing your home can take a lot of time. If you’re looking for a fast solution, refinancing may not be the best option for you.
Refinance Your Home with Landmark National Bank
When you’re ready to refinance your home or need advice on whether refinancing is the best decision for you, Landmark National Bank is here to help. Our associates are always available to talk through the refinancing process and provide you with the tools you need to be successful. Visit a mortgage lender at a Landmark National Bank near you to get started today!