Refinancing - The Benefits

Refinancing a mortgage can help a homeowner save money. By refinancing, homeowners can lower their monthly payments, increase their credit scores, access the equity in their homes and pay off their mortgage sooner than they had expected, saving them money on interest fees in the long run. Refinancing can also help homeowners change the terms of their mortgage agreements.

If mortgage rates have dropped significantly since the home was originally financed, refinancing can lower the monthly payments and decrease the overall amount paid toward interest over the life of the loan. Although most lenders consider a one percent drop in interest rates to make refinancing worth it, even refinancing at half a percent lower than the initial rate can appreciably lower a monthly mortgage payment. Homeowners paying high interest rates in an adjustable-rate mortgage can refinance with a fixed-rate mortgage to increase their financial stability.

Homeowners with other types of debt can transfer that debt to their home loan when refinancing. This can lower the interest rate and therefore the payments on credit card debt and car loans. If an individual’s credit score has increased since taking out the initial mortgage, he or she may be able to take advantage of lower rates and other benefits offered to people with good credit. Cash-out refinancing allows homeowners to access the equity in their homes and direct it toward education, debt repayment or home remodeling.