Refinancing property can be a great financial move for property owners looking to reduce their mortgage payments, shorten their mortgage term or consolidate their debt. There are several common reasons why owners refinance property:
Securing a lower interest rate
One of the most common reasons for property owners to refinance their property is to obtain a lower interest rate on their existing loan. A lower interest rate not only helps save money, but also provides an opportunity to shorten the term of a loan with little change in their monthly repayment.
Most people look for ways to cut back on their expenses during times of financial difficulties and home loan repayments are top of the list. By shopping around for a loan with a lower interest rate or fewer fees, property owners can refinance their property to reduce their repayments.
Converting to a different mortgage type:
While variable rate mortgages usually start out with a lower interest rate than a fixed-rate mortgage, periodic interest rate adjustments sometimes result in a variable rate that is higher than the rate for fixed-rate mortgage. When this happens, property owners can convert their variable rate mortgage to a fixed-rate one by refinancing their property. Conversely, in a falling interest rate environment, property owners may refinance their property and switch their fixed-rate mortgage to a variable rate mortgage.
Through refinancing property, property owners can incorporate some or all of their high-interest debt, such as credit card debt and car loans, into a lower-interest home loan. This reduces the overall interest payable and streamlines all short-term loans into a single long-term loan.