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It makes sense to refinance mortgage when it helps you save money or makes repayment more manageable. Refinancing a loan gives some mortgage borrowers relief, even if that means starting over with a new mortgage loan. Mortgage refinancing replaces your current loan with revised terms and conditions with a new one. Although it reduces the interest rate, saves money, and makes repayment easier, it is not always the best choice for everyone. 

Here you will understand that refinancing home mortgage loans is a better option than continuing with your old mortgage.

How Does Mortgage Refinancing Work?

When you refinance your mortgage, you pay off your existing loan and get a new mortgage loan to deal with. The refinanced loan comes with a new loan amount, revised interest rate, and flexible repayment term that you can choose according to your budget. Depending on your property valuation and outstanding loan balance, you may calculate your mortgage loan amount using a mortgage loan calculator.

When Should You Consider Refinancing Your Mortgage Loan?

Timing your mortgage loan to refinance makes a massive difference in your savings and loan payments.  Here are a few situations when refinancing makes excellent sense.

When you are in the initial stages of your loan tenure

Refinancing your loan early in the loan tenure makes more sense than doing it later. You won’t be able to benefit much if you have already paid most of your loan and interest cost. Refinancing early with a lower interest loan will help you save big over the loan term. Therefore, even if you are getting a lower interest rate loan, consider refinancing only if you are in the initial stages of your existing loan tenure. This is the time when your EMIs predominantly constitute the interest payments. Therefore, refinancing it during this time will lead to more considerable savings.

When you want to change your loan tenure

The lender calculates your loan EMIs according to the loan tenure you select. If you want to reduce your EMI amount, you may opt for a longer loan tenure. However, if you wish to pay off the loan faster by increasing your EMI amount, you may refinance your loan to select a shorter loan tenure.

When you find another mortgage loan with a lower interest rate

The most significant part of home mortgage loans is their interest rate. The higher the interest rate, the more interest cost, and the total interest outgo will be. Therefore, if you find a lender offering a mortgage loan at a lower interest rate, a difference of even a few percentage points may lead to easier EMIs, shorter repayment tenure, the reduced interest cost, and more considerable money savings.

When your credit score improves

When you applied for your existing mortgage loan, the lender must have offered you a high-interest rate if your credit score was low at that time. With regular payments, you might have improved your credit score, but you must be still paying that high-interest rate. In that case, you may consider refinancing your mortgage loan to revise your interest rate according to your improved credit score. Remember, lenders, check your credit score to determine your loan amount and interest rate.

When your income increases

Lenders pay attention to your income while offering you a loan amount and determining your interest rate. As you move forward in your career, you may increase your revenue and find yourself capable of paying a higher EMI amount every month. So, you would not want to pay the same EMI for your entire loan term and stay indebted for so long. You can shorten your loan term with a higher EMI amount to pay off your debt faster by refinancing your mortgage loan.

When you are getting a better service

Since home mortgage loans are long-term loans that keep you hooked with your lender for several years, the lender’s customer service and other terms and conditions matter a lot for a pleasant loan experience. If you are not satisfied with your current lender’s service and another lender is offering you facilities like on-tap customer care, digitised account management, and others, they make compelling reasons for a loan refinancing.

When you want to add or remove a co-borrower

Sometimes, you may want to add or remove a co-borrower due to divorce, death, relocation, or another reason. In that case, you must refinance your loan to make the necessary change.

Refinancing your mortgage loan will be an excellent financial move if it helps you save money and simplifies your loan repayment. When you do it carefully, you can use this valuable tool to bring your debt under control. However, before refinancing your mortgage loans, look at your financial situation and make an informed decision to avail of the maximum benefit.