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There are a number of options for those dealing with financial setbacks. For those who are experiencing a sudden financial hardship such as a loss of employment, making their monthly mortgage payments can be difficult. Dealing with loss of income or an increase in bills from hospital stays or other unexpected expenses often leaves homeowners with nothing but their savings to cover their bills. One option to help relieve some of this financial stress is to refinance.
With the current low interest rates, refinancing can help homeowners drop their monthly payments by a good amount. However, refinancing is usually only an easy option when the homeowner is current on their payments. This is because lenders typically want to see six months to a year of on-time payments. Missing even one can make it very difficult to be approved for a refinance loan.
Those who can get approved will find that refinancing can help reduce their monthly payment in different ways:
1. Refinance a fixed-rate mortgage for an adjustable-rate mortgage (ARM).
ARM interest rates are lower than fixed rates and may save borrowers more than $200 a month. Of course, these rates could change at a later date.
2. Refinance to a loan with a longer maturity date.
While 15-year loans allow borrowers to pay off the loan faster and usually have lower interest rates, the monthly payments are much higher. By refinancing from a 10, 15, or 20-year loan to a 30-year one, borrowers can lower their payments.