The Surprising Benefits of Refinancing a Mortgage
Discover creative ways to use mortgage refinancing. Check out this insightful read now!
To refinance a mortgage is to get a new loan to pay off an existing one. In essence, you are merely replacing an undesirable mortgage.
Refinancing is common practice among Utah to get lower interest, to switch from an adjustable- to a fixed-rate loan, or to shorten a term. But with a dash of creativity, you can get so much more out of it.
In addition to snagging a more favorable mortgage refinance rate in Salt Lake City or any neighboring community, below are the other benefits that you can enjoy:
Turning Home Equity to Cold Cash
A cash-out refinance mortgage allows you to borrow more than what you currently owe. If your house grew in value over time, you could tap the equity that you gained to earn instant cash.
The best part is that you do not have to justify where you want to use the money. You can use it to fund a home improvement, to consolidate other debts, or to take your family on a trip.
The only caveat is your home equity. If the local housing market crashes, your mortgage might sink underwater. If you borrow more than 80% of what your property is worth at the time of refinancing, you might be obligated to pay private mortgage insurance (PMI).
Eliminating the PMI
Speaking of PMI, refinancing your mortgage can help you cancel it sooner. But then again, this benefit is only attainable if your house experienced enough appreciation since the date you bought it.
Ridding your loan of PMI is purely advantageous. After all, this insurance exists to protect the interests of a financial institution. You pay for it because you were deemed “risky” by your lender after you borrowed more than 80% of the property’s price.
Moreover, some lenders have seasoning requirements that prevent you from refinancing your loan within the first 24 months.
Removing a Person from the Mortgage
Refinancing your current home loan allows you to take sole ownership of it. If you had a divorce and want to remove your ex-spouse’s name from the mortgage, applying for a fresh loan is a convenient solution.
The same principle applies if you wish to free a co-signer from liability for your loan. If you no longer need the support of that person, refinance your mortgage to start taking full accountability for possible missed payments.
Rolling Two Loans into One
Are you paying for two mortgages? Refinancing allows you to replace both with one attached to a lower interest rate.
The beauty of this strategy is similar to the one involving a cash-out refi except that your home equity will not decrease. The extra money that you gain will be used to pay off your other loans, so your level of property ownership will not go down.
Stopping a Foreclosure
In theory, you can refinance your mortgage to prevent a credit-ruining foreclosure. The proceeds from your new loan will be used to settle your delinquent payments.
However, this is harder to pull in real life. If you are nearing foreclosure, your credit score is likely not that good, which can be grounds for denial.
Refinancing your mortgage is a significant decision with long-term implications. Mull over it to make sure that it makes sense for your situation now and in the future.