Today many people are looking for ways to get cash out of their existing assets. Mortgage refinancing can provide a number of benefits in this economy and pandemic. Some of the key benefits include:
A better mortgage rate
This may be the most common reason for refinancing. If mortgage rates have fallen since you took out the loan, you can often save money by refinancing you mortgage into a new home loan at current rates. Or perhaps your credit situation has improved, so you're eligible for a lower rate.
Lower monthly payments
With a lower interest rate, you can get lower monthly payments as well, particularly if your refinanced mortgage has the same payoff date as your old home loan. You can also lower your monthly mortgage payments by extending your payoff date past what it currently is, so you're paying less in principle each month.
More predictable costs
If you currently have an ARM (adjustable-rate mortgage), you may choose to refinance to a fixed-rate loan to lock in your rate for the remainder of your mortgage. That way, you don't have to worry about your monthly payments increasing if rates should rise.
Term Shortening
Many borrowers start out with a 30-year home loan, then refinance to a 15-year fixed-rate mortgage after a few years. This allows them to pay the mortgage off faster and save a lot of money in interest over the life of the loan. Mortgage rates on 15-year loans are also significantly lower than on 30-year mortgages, so you may be able to shorten your term without a big increase in your monthly mortgage payment.
Debt Consolidation
You can use a cash-out refinance to pay off other debts to save money on interest and reduce your total monthly payments. Mortgage rates are usually lower than the interest rates paid on credit cards and other unsecured debt, so you save on interest payments.
Mortgages can also be repaid over longer terms than most other types of debt, up to 30 years, so you can reduce your monthly payments against debt principle, if that's your goal.
Interest paid on mortgages and home equity loans is also tax-deductible, up to certain limits, whereas interest paid on other debts usually is not. Couples can deduct the interest paid on up to $100,000 obtained through a cash-out refinance for debt consolidation; for single persons the limit is $50,000.