Refinancing your mortgage can offer some appealing financial advantages, but only when it’s done right.
- Lower your monthly payments. When you refinance your mortgage to a lower interest rate, you can reap some serious savings over the life of the loan, but you also reduce your monthly payments, freeing up more cash to put away for retirement, a college fund and more.
- Build equity faster. If you can refinance for a shorter loan term, you’ll be paying more on your principal and build up more equity in a shorter amount of time. Shorter-term loans often offer lower interest rates, but even then, you may pay a little more in monthly payments than you were with a 30-year mortgage. Sometimes, the payments end up about the same.
- Manage your credit. When used prudently, a mortgage refinance at a lower rate can help you pay down high-interest credit card debt and/or other debts and improve your credit worthiness. The money you save on monthly payments can be put to paying off your cards. Or, you could refinance for more money than is owed on your house and take the extra back as cash. Doing so and using the lump sum to eliminate your other debts only makes sense if you can commit to not jumping back on the credit card carousel and racking up more debt.
Remember: Before deciding to refinance, you need to KNOW it will save you money. Consider the closing costs and if the savings on the new loan are greater than those expenses. Also consider how long you plan to stay in the house, as that can affect the above equation. Use MAX’s Refinance Calculator to see if refinancing is a fit for you.