When many homeowners consider refinancing a home loan, they often wonder if they should refinance their home mortgage or not. There are many reasons to refinance a property, so when considering a refinance, it is important to make sure that there is a benefit to the new mortgage loan. Without a benefit to the new home loan, there is no need to refinance.
Lower Monthly Mortgage Payment
One of the main reasons people consider a refinance home loan is to lower the monthly payment. Refinancing can save you money per month by decreasing the loan payment. The rule of thumb is that a refinance mortgage is beneficial if the mortgage loan payment decreases by at least 5%. So, if your current home mortgage loan payment is $1000, then the new home mortgage would need to have a payment no higher than $950. Many home loan companies will not approve a refinance if there is not a benefit to the new mortgage loan and many mortgage lenders use the 5% rule as to determine if the new home mortgage has a benefit or not.
Lower the Mortgage Term
A common reason to refinance is to lower the term. Many consumers will refinance from a 30-year mortgage to a 15-year mortgage in order to payoff the home loan faster. By refinancing into a 15-year loan, not only do you save money on the interest rate, but you will save money over the lifetime of the mortgage loan. With current interest rates low, 15-year mortgages have become a common option for many homeowners.
Cash Out Mortgages
For many people, a cash out mortgage is a great opportunity to use the equity in their property to pay off debts, do home improvements or to just get some extra cash out. A cash out home mortgage refinance can help lower total monthly debt payments by consolidating credit cards, car loans, installment loans and mortgage loans into one payment. By consolidating debts into one payment, many homeowners have saves thousands per month.
Escrow Accounts
A home mortgage refinance can also be used to catch up a consumer on their escrow account or help pay off any delinquent property taxes. At times, some homeowners can get behind on their escrow accounts because property taxes and homeowner’s insurance premium change yearly. If the escrow account becomes too short, many home loan companies will increase the month payment in order to catch up on the negative escrow account. Sometimes the increase mortgage payment is over $500. By refinancing, the homeowner has the ability to restructure the escrow account.
Also, if a homeowner is behind on property taxes, a refinance could help pay the property taxes.
Finally, it is important that when considering a refinancing home loan, that there is a benefit to the new home mortgage. Without a benefit to the new home loan, many lenders will not approve the loan. So whether you are looking to lower your rate, lower your monthly payment, lower your loan term or take cash out, talk to your mortgage consultant to see what benefits you have in refinancing.
David White is a Mortgage Advisor with the Texas Home Loan Team at Prospect Mortgage. Complete our home mortgage refinance form today to see if refinancing your home can save you money. See how a refinance home loan can benefit you today!
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