When you think of refinancing your home loan, what comes to mind? Saving money with a lower rate or shorter term may top the list. Maybe you’re in an adjustable rate mortgage and you’d like the predictability of a fixed rate loan. Perhaps you’d like to take money out to pay for college, a renovation or a new business venture but you’re wondering if it’s possible. With the continuing trend of rising home prices, you may have equity in your home that you can tap for important purposes. Here are 5 reasons to refinance your home.
1.Lower Your Rate. This is the first thing most people think of when they think of refinancing: I’ll refinance to a lower rate and save on my monthly mortgage payment. You may have heard that there’s a number to tell you when to do this, such as when rates are a certain percentage lower than your current rate. Guess what? There is no such number. Furthermore, if you just watch rates you may miss another opportunity. If your credit score has improved since you took out your current home loan, you may qualify for a lower rate. The only way to know if you can save money is to review your current home loan with an experienced mortgage loan originator.
2.Shorten Your Term. Refinancing to a shorter term has the potential to save you a lot of money over the length of your loan, even though you may have a higher monthly payment. It depends upon the length of time left on your current loan, among other factors. You may need to exercise greater financial discipline in the short term, but the long-term reward as you save on interest could be significant. How do you find out? Talk to an experienced mortgage loan originator. (You may be sensing a trend in this blog!)
3.Consolidate Debt. If you are carrying higher-interest debt, such as credit card balances or a personal loan, a debt-consolidation refinance could lower your monthly payments. However, you will need to make sure you don’t rack up a new round of debt in addition to your higher mortgage amount. That could place you in a worse financial position. A debt-consolidation refinance does not pay off your debt and there may not be enough equity to consolidate all of your bills. You may be required to close your credit accounts, so it’s not a move to take lightly. In addition to reviewing your situation with an experienced mortgage loan originator, be sure to consult your trusted tax or financial advisor regarding the effect of consolidating short-term debt into long-term debt.
4.Combine Or Change Loans. If you have an adjustable rate mortgage, a home equity loan or line of credit in addition to a first mortgage, or a home loan with mortgage insurance, refinancing may give you the opportunity to save money or lock in a fixed rate. Deciding if refinancing is advantageous will require careful analysis with your trusted mortgage loan originator.
5.Cash For Important Projects. Home values have been rising steadily. Depending on when you purchased your home and the market you’re in, you may have significant equity that you can tap. Think carefully about what to do with the cash. Good uses might be paying for college to avoid or reduce student loan debt, creating the seed money for your own business venture, or renovating your home to add features or update it. (Remodeling so you can stay in your home longer as you age is very popular with Baby Boomers.) However, experts warn against refinancing for consumer purchases like a new car or a dream vacation. Think of the cash from a refinance as an investment in your future. It took a long time to build up that equity – don’t blow it on something that will lose value immediately.
While a refinance may be a good option, you’ll need expert advice to help you decide if it’s not only right for you, but also which refi program suits your situation. Let’s talk about refinancing to find out it if makes sense for you.
Senior Vice President, National Production