A staggering one million people every year lose their homes to foreclosure. This hard, but true, reality is often the result of missed mortgage payments and unpaid bills. The average home loan that Americans take out on their properties is roughly $200,000, which means that the standard monthly payment is about $1,500 for a 30-year term. While almost all homeowners enter into the contract thinking that they can undoubtedly pay their bills on time, things can happen and mortgage payments can become a downright burden. The loss of a job, a reduction in your income, the birth of children and increasing interest rates can all make that nominal bill one of your worst nightmares.
Refinancing your mortgage involves getting rid of your old home loan and replacing it with a new one. You might wonder what impact this could possibly have on your current mortgage payment, but it’s important to understand that many who have refinanced in the past have been able to avoid foreclosure because of their new loan. Put bluntly, refinancing could mean the different between losing your home and continuing to live there.
Here are some of the reasons refinancing might be the right option for you:
There are two main term lengths available to home loan buyers: 15-year and 30-year. For those with a 30-year mortgage, refinancing can shorten the term length so that the home is paid off quicker. While this increases your monthly payments, it is beneficial to people who just want their home paid off so they can live there mortgage-free. Alternatively, a 15-year mortgage can be lengthened to become a 30-year contract. This will reduce your payments by about half every single month, but it means you’ll be paying your home off for double that time.
Switch from an Adjustable Rate to a Fixed Rate or Vice Versa
Adjustable rate mortgages are great when interest rates drop and are affordably low. Unfortunately, unlike a fixed rate that stays the same year after year, adjustable rates can sky rocket for variable reasons. Let’s say you purchased your home with a 3.010 percent adjustable interest rate. This is a low rate that will make paying off your mortgage a breeze, that is until that rate gets hiked up to a substantial 5.481 percent. The interest rate can practically double just because you were locked into an adjustable rate agreement. Refinancing can get you out of this contract to go with a fixed rate, saving you lots of money on unnecessary fees. Some homeowners choose to go from a fixed rate to an adjustable one because the current interest rates are so low, and this is yet another reason to refinance.
Cash Out Home Equity
Cashing out home equity is great for paying off debts, starting a business or investing in other properties. Home equity is the line of credit you take out that goes against your home’s value. It is a type of loan that must be paid back on time to avoid foreclosure, making it more beneficial to people who are responsible with their money and are refinancing with a clear plan in mind.
You Need a Better Company with a Better Rate
Not all mortgage companies are created alike. Some charge ridiculous fees that soar year after year. Others offer virtually no customer support when you have questions or concerns. You might have even gone with a company when you had a bad credit score and now your score has been repaired. Switching the loan company is a viable reason to refinance. Thorough research will help you sift through the bad companies to find the one that fits your financial needs, offering interest rates that are comparable in the marketplace and loan agreements that you can afford.
Any time that you find your mortgage payments are causing financial problems, refinancing is a recourse to consider. When you go to refinance, be sure to bring all of the necessary paperwork that you would when applying for a loan. You’ll need income statements, bank account inquiries and credit score print-outs that will help the bank determine if you’re a good candidate for mortgage refinance.