If you’re unable to make payments for your existing mortgage loan or find that the interest rate in the market has fallen than the rate you are paying on your current mortgage, you can opt for refinancing. You may get a new loan of the same amount, keeping your same property as collateral.
Why should you opt for refinancing?
People opt to get refinance on their mortgage for several reasons. You may opt for refinancing, for any one of the following situations:
1.If you have an adjustable-rate mortgage and you want to convert to fixed rate mortgage
2.If you want to convert your short term loan to long term, as you want to reduce your monthly payments
3.If you want to change your current high interest rate mortgage to a lower interest rate mortgage
4.If you have more than one mortgage and want to consolidate them into a single new loan
5.If you have a longer loan term and want it to convert to a shorter loan term, so that you can pay off your loan faster and build equity
6.If you want to get an adjustable-rate mortgage with better terms
7.If you want some cash to pay off other multiple debts or to purchase something
What are the types of refinancing?
Once you make up your mind to refinance your mortgage, you can opt for any type, according to your suitability. The 4 main types of refinancing are:
1.Low fixed rate loan: If you have a fixed rate mortgage with very high interest rate and find that the interest rate in the market has dropped, you may go for this type. You can also go for this type if you have an adjustable-rate mortgage. It is better to go for a fixed rate mortgage with lower interest rate, than to have an adjustable-rate mortgage, because, interest rate in adjustable-rate mortgage can become higher at any time.
2.Short term loan: You can opt for a shorter loan term if you want to pay off your loan quickly and build up equity. In this type of refinance, your monthly repayment amount will be higher, but, you will be able to pay off your mortgage at a less time. You will also get tax deduction on the interest.
3.Longer term loan: If you cannot afford to your current high monthly payment amount, you can opt to refinance your mortgage to get a loan with longer term and lower interest rate.
4.Cash-out refinancing: You can opt for this type if you want to take a higher amount of loan than your current mortgage and convert the difference as home equity into cash.
You can opt for any type refinancing plan, based on your affordability and choose the type that suits you the best.