Getting a better rate: how come?

That article is about Getting a better rate: how come? One of the most common reasons that people choose to refinance their mortgage is so that they can get a better interest rate. The reason that this is important should be obvious, the lower your interest rate the less you will have to pay on your mortgage. That being said most people significantly underestimate just how much they will save by reducing their interest rate. Even a small reduction can really add up.

Getting a better rate: how come?

There are a few different reasons that you may be able to get a better interest rate if you refinance your mortgage and it is important to understand what these are. The first is that interest rates in general have gone down. The interest rate that is charged on your mortgage is heavily influenced by the prime rate which goes up and down all the time.

If the prime rate has gone down since you took out your mortgage you will almost certainly be able to get a better rate if you refinance your mortgage. This only applies however if you are on a fixed rate mortgage, if you are on an adjustable rate mortgage your rate will go down with the prime rate anyway.

A far more common reason that you may be able to get a better interest rate by refinancing is that your credit has improved. A lot of people get mortgages when they have less than perfect credit, this almost always results in them paying a higher interest rate than people with good credit would pay. After a few years of making regular payments on your house there is a pretty good chance that your credit will have improved. The result is that you will likely be able to refinance and get a better interest rate.

You may also be able to get a better interest rate when you refinance simply from having built up equity in your house. This is because the more equity that you have in your house the less of a risk you are to the bank. This is because it is less likely that you will fail to make your payments when you have all that equity built up. In addition if they do have to foreclose the bank has a far better chance of getting its money back if you have a lot of equity in your house.

Having a lot of equity in your house will also benefit you in another way. Most people need to take out private mortgage insurance when they buy their house. However once you have enough equity you can refinance and no longer have to pay it. Since private mortgage insurance is normally charged monthly as a percentage of the mortgage getting rid of it has the same effect as reducing your interest rate. It is therefore almost always a good idea to refinance once you have enough equity that you no longer have to pay mortgage insurance.

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