When you get a home loan, you are free to pay it off at any time. However, you might want to make sure your loan does not have a prepayment penalty before you pay it off. If it does, you can still pay it off, but you will pay an extra fee. Most people do not pay off their loans early, but many refinance their loans. Refinancing a loan pays the loan off, but it also creates a new one. Here are three excellent reasons to refinance your home loan.
1. To Reduce the Duration of Your Loan
When you took your mortgage, was it a 30-year loan? If so, how many years have you paid towards it? Suppose you have paid five years on the loan, so you have 25 years left. If you want to shorten your loan duration to 20 years, you can do so by refinancing. If you refinance, you can get a 20-year loan to replace your current mortgage. By doing this, you can cut five years off your loan payments. When you shorten a loan like this, your payments will likely go up. If interest rates are currently lower than your rate, you might not see a huge increase in your payment amount.
2. To Save Money on Your Monthly Expenses
Another great reason to refinance is to save money on your monthly expenses. If you currently earn less money now than you did when you took out the original mortgage, you might want to find a way to cut your monthly expenses. If you refinance, you might be able to achieve this goal. To cut your mortgage payment, you will need to make sure you can get a lower interest rate. You could also extend the loan duration to reduce your payments.
3. To Eliminate Private Mortgage Insurance
One last reason to consider refinancing is to eliminate your private mortgage insurance (PMI) payments. If you pay PMI, it is because you financed more than 80% of the home's value. If you currently have more than 20% equity in the house, you no longer need to pay PMI. One of the best ways to drop the PMI from a loan is through refinancing.
Do you have a good reason to refinance? If so, talk to a lender to learn more about the process. You can also ask about the loan terms. Contact a lender today to begin working on your mortgage refinance.