While experienced homeowners wouldn’t think twice about refinancing their mortgage into a lower interest rate loan, the same thing can’t be said about those newer to the game. According to numerous surveys, millennials are actually refusing to refinance their loans, even though it could help them save money each month.
So what’s causing this growing trend? It could be because millennials don’t trust banks, because they don’t want to take additional financing risks, or just because they don’t know how refinancing works. The purpose of this article is to help the largest generation in the history of the U.S. better understand what refinancing can do for them.
Benefits of refinancing
Refinancing is essentially a new loan that takes the place of an old one. But, although it’s not free, it can still offer you numerous benefits. Here are some of them:
- Lower interest rates – By paying less interest, you will save money in the long run.
- Lower monthly payments – Refinancing can put some extra cash in your pocket each month. It will give you the chance to pay off other monthly expenses.
- Shorter or longer repayment terms – You can either pay off your mortgage sooner or manage your monthly expenses better.
- No mortgage insurance – Refinancing can rid of this monthly expense, which only benefits your lender.
- You can change your rate type – With refinancing you can go from an adjustable rate loan to fixed rate one. Knowing that your rate won’t rise unexpectedly will greatly reduce your stress levels.
Refinancing can be even more helpful if you improve your financial health. And despite what some believe, you don’t need to be a longtime homeowner or to have a lot of equity in your home in order to refinance and benefit from it. It is, in fact, possible to refinance with no equity at all. The downside is that you will also have to pay for mortgage insurance and you won’t be able to get any cash out. But the benefits are still there and they might make it worthwhile for you.
Additionally, you don’t have to pay a lot of fees to refinance. It all depends on the type of loan you choose. You can either add the costs to your loan amount or take on a higher interest rate for a no-cost refinancing. If it can help you out, than you shouldn’t be discouraged by the higher rates or the larger loan.
You should never be afraid of refinancing. It comes with both benefits and risks, but, if you do your research, if you use a mortgage calculator, you can make sure that the former outweigh the latter.