3 Reasons to Consider Refinancing a Mortgage Loan

In these uncertain times, people are looking for ways to lower the monthly payments on their loans. The good news is refinancing can help with that and save smart money over time. Loan refinancing is used for all types of credit, including mortgages. Usually, the new loan that you are about to take will come with better terms than the old one. However, it depends on various factors – your credit score, how much you have already paid, etc. That is why it is important to weigh the advantages and disadvantages before applying. We will point out some of the reasons why you should consider refinancing a mortgage loan.

Get a Lower Interest Rate

Certainly, one of the best reasons to refinance mortgage loans is that you can obtain a lower interest rate. If you think the interest on your current loan is too high, you can try to find a lender offering more favorable terms. It is possible to reduce your interest by 2% or more. There are convenient online calculators that will help you make the necessary costs estimate and see if loan refinancing will be worth it with the particular lender.

When you reduce the interest rate, you save money but also build equity in your home. This means that you will have a better chance to sell the property later on for more than you owe on your mortgage loan. Plus, refinancing might decrease your monthly payments. Most people use the services of banks for such loans. But the truth is, in almost every bank the process of taking out a mortgage and refinancing it later is quite complicated.

For more flexibility, you can try applying at non-bank financial institutions like CreditTrust, which is a company registered by the Bulgarian National Bank and offers interest of 1% per month and 30-minute approval. Mortgage loans over 10,000 lv. are granted regardless of credit history and proof of income. Credits from this institution can be used for loan refinancing from another company, payment of obligations, household needs, etc. 

Shorten The Term of Your Loan

Logically, taking out a new loan is associated with an extension of the payment period. But not in this case. When refinancing an existing mortgage loan, you have the chance to get a shorter term without much change in your monthly payment. For example, if you have a 30-year mortgage with a fixed rate and refinance it, the term can be cut in half. If you are switching from 9% to 5-6%, the change in the monthly payment will be slight.

Some people are afraid to refinance for a shorter term because they think it will be very hard to pay the increased installment. But as you’ve seen from the example above, it might not be much higher. If your goal is to get rid of the mortgage sooner and pay the least amount of interest possible, refinancing for a shorter term would be a great idea. You should read everything in detail when looking for offers. The terms and conditions may be different from those of the personal loans you are used to.

Consolidate Debt

Lots of homeowners decide to refinance to consolidate their debt. This decision is actually not bad at all. Replacing a high-interest mortgage with a low-interest loan sounds well. But another problem often occurs – most people start spending a lot once refinancing relieves them from debt. Anyone who has generated debt on credit cards or different purchases is likely to do so again after the refinance of the mortgage gives them the available credit. So, only take this step if you are sure you can resist the temptation.

If you pay the minimum on other loans or credit cards, you can end up paying for decades. But with mortgage refinancing the picture is much clearer – you know how much you will pay and when exactly you will have the whole loan paid off. The interest rate for your mortgage after refinance will be lower than these of unsecured personal loans. Therefore, consolidating debt can be really useful for you.

Keep in mind that refinancing a mortgage loan is still a pretty serious decision. You can’t take it just like that under the influence of strong emotions. It is important to research as many offers as possible from different lenders. Don’t forget to read everything down to the smallest detail before signing a contract because there is no going back. Like any financial service, refinancing has its benefits and drawbacks. Whether it is a suitable option depends on the individual situation and capabilities of the user.