How to Save Money Through Refinancing
Are you looking to save some big money? Who isn’t? Refinancing a loan is a surefire way to do just that, so long as you do it right. However, refinancing can also leave a black hole in your bank account if you go about it the wrong way. Below are a few things you should know before entering the loan refinancing process.
What Is Loan Refinancing?
To get started, let’s discuss what refinancing your mortgage actually means. In this process, you’re replacing your existing mortgage with a new one. That can mean reduced monthly payments or reduced interest rates. In some cases, you can even take cash out of your home for large purchases. These are known as home equity loans – we’ll talk a little more about them later.
Loan refinancing can be an option for saving money because of this, but it’s important to proceed with caution in the loan refinancing process, especially when it comes to finding the best interest rates, so you don’t end up increasing rather than decreasing the amount you’re paying in interest on your loan.
How You Can Save
One way you can save money through refinancing your mortgage is by switching to a shorter loan term. While this does mean you will end up with a higher monthly payment, at the end of the loan term you’ll end up having paid a much smaller amount in interest over fewer years and you can have financial freedom from your mortgage at an earlier date (especially good for those who don’t want to be paying for their home for decades down the road).
Another advantage of refinancing your mortgage is that often, buyers are required to purchase PMI (Private Mortgage Insurance) on their mortgage. When refinancing, homeowners may be able to negotiate terms that allow them to do away with PMI, which may be able to save them thousands of dollars per year depending on the value of their home.
What You Should Know About Home Equity Loans
If the value of your home is higher than what you owe on your mortgage, you have home equity, and therefore qualify for home equity loans. This allows you to borrow against your home, getting a fixed rate to be repaid over a set number of years. This kind of loan can be used however you like. For example, many people choose to take out these loans to help with home improvements or remodeling.
Those looking to save money may also use home equity loans to pay off other debts such as credit card bills or car payments, essentially shifting their debt. This can be a good option if the terms of the home equity loan are better than those of the debt you are considering paying off. However, it is important to think through the process. Is this really the best solution for your needs? For some people, the answer is yes, but for others, it may be a hard pass.
Are you interested in learning about the refinancing process? Citizens Bank has been serving the Big Country and Rolling Plains region of Texas for over 100 years and is committed to providing quality customer service and building enduring relationships with customers. If you’d like to learn more about how we can help you with refinancing, contact us today.