As a homeowner, the idea of refinancing has no doubt crossed your mind. Perhaps you’ve heard in passing from friends or family that refinancing their mortgages helped them save. Or perhaps you’ve seen articles that suggest refinancing is a smart idea. If you choose to refinance your home in Maryland, it’s important to know what the pros and cons of the process are.
What is Refinancing Anyway?
Put simply, refinancing is the process of obtaining a new mortgage to score better rates, or have access to additional cash, among other things. There are several distinct types of refinacing you should be aware of, including:
Cash Out Home Equity
This allows you to extract equity from your home if you need cash. Common reasons this option is used include making renovations or repairs to a house, helping fund a business venture, or paying off high-interest debts.
Change Loan Duration
Commonly, refinancing is used to change a loan duration. Monthly payments can be increased to pay off the loan faster, or reduced to get a lower rate but add more time to the mortgage term.
Changing Interest Rate
Your financial situation may have improved from when you first acquired your loan, or perhaps the market now has more favorable rates on offer. Many homeowners refinance to lower their interest rate and save money over the remaining duration of the loan.
What Are the Advantages of Refinancing Your Home In Maryland?
If you’re considering refinancing, what are the advantages you should know? Refinacing primarily appeals to those who are in a more stable financial position than when they first acquired their home loan. If your credit score has risen and you make more money, you can utilize refinancing as a method of lowering your overall interest payments. Whille a decrease by 2 or 3 percent may not sound huge, it can mean tens of thousands of dollars saved in the long run.
For others, refinancing is used as a method to leverage another investment. As we mentioned previously, cash out home equity refinancing is popular with those who are seeking to invest in business ventures. A home equity line of credit is also often used to make improvements to homes via substantial renovations and extensions. Not only can this make your home more livable, it can also raise the property value if you are eventually looking to sell. Refinancing is a strong option for those looking to restructure loans to reduce payments or to make an investment in their business or home via a home equity line of credit. However, there refinancing may not be the best option for every homeowner.
When to Not Refinance
While refinancing has some distinct advantages, there are a few reasons you should not use to refinance. One is consolidating debt. While debt consolidation can be a smart financial choice for certain kinds of debt, bundling credit card, student loan, or car loan debt into your home loan can mean that your home is now collateral for all of those payments. You don’t want a missed student loan payment to result in the forclosure of your home. A second reason is to not refinance is if you are seeking a home equity line of credit for frivolous spending. Tying yourself down to a new mortgage period so you can finance a vacation can be a financially detrimental choice in the long run. Lastly, it’s not a good idea to refinance if the rate you’re acquiring is only marginally lower than your current rate. You don’t want to add more years onto your mortgage term for a rate that won’t actually save you a substantial amount of money in the long run.
Still Unsure if You’re Ready to Refinance Your Home in Maryland?
Speak with the team at Federal Hill Mortgage. Our experts can help provide you with a holistic view of your financial situation, and determine if refinancing is the right option for you. Reach out to the FHM team today to get started.
