Refinancing
The main goal of a mortgage company is to help its customers refinance their loans. Refinancing is paying off an old loan with a new loan. There are many advantages to refinancing. These advantages can include lower monthly payments, lowering the interest rate, and cashing out equity built up in the home. Another advantage can be to consolidate multiple home loans that one may have on their property. In the past few years interest rates have been at all time lows. These low interest rates have made home refinancing more popular during this time.
When should home owners refinance? The general rule of thumb is that a home owner should consider refinancing if the current interest rate on their mortgage is at least 2% points higher than the prevailing market interest rate. A home owner should also consider how long they plan to stay in their home when thinking about refinancing. Most people believe that to reap the benefits of refinancing a home owner has to stay in their house for 3 years or more.
Some home owners have an adjustable-rate mortgage (ARM) and want a fixed-rate loan to have the certainty of knowing exactly what the mortgage payment will be for the life of the loan. This means that refinancing can also secure their loan at a rate so they never have to worry about interest rate inflation. Refinancing can also be useful if the home owner wants to build up equity more quickly by converting to a loan with a shorter term. Another bonus to refinancing can be if the home owner wants to draw on the equity built up in their house to get cash for a major purchase or for their children's education.