If you’re a homeowner, you might be hearing everyone, from your neighbors to news anchors, and everywhere on social media talking about refinancing. So, should you be considering it too? There are many situations in which refinancing your mortgage may be the right move — let’s go over the 6 reasons to refinance your home.
WAIT, before we go through the reasons, let’s jump back and review the two types of refinances you will consider:
Rate & Term Refinance
The concept of the rate and term refinance is simple. You are taking the current payoff of your mortgage and choosing the term. 30 years, 15 years, or 10 years. This is a great way to take advantage of low rates to possibly decrease the term and overall cost of your mortgage. It offers the flip side if you are just seeking payment flexibility. If you want a lower payment, you can refinance to a lower rate and longer-term.
Cash-out refinance gives you the ability to potentially consolidate some if not all of your debt into one single payment. You may still take advantage of all of the above. Namely, a lower rate and term flexibility. In addition to paying off debt that is not tax-deductible, you can use the cash-out portion to fund major purchases.
6 Reasons to Refinance Your Home: #1
I want to lower my monthly payments:
If rates have dropped since you got your last mortgage, you may be able to refinance into a loan with a lower rate. Why? You can reduce the amount of interest and lower your monthly payments. The result? You’ll also pay less over the life of your loan. You can check today’s rates or more specifically, your rate to your situation here.
If it is not about the rate, what would be another reason? Are you going through a future career change? Starting a business? If you run into a situation that will lead to a decrease in income, you may be able to lengthen your loan term to pay off your loan more gradually. In switching from a 15-year fixed mortgage into a 30-year mortgage, you can make lower monthly payments. This would be known as a cash flow tool.
Another big one! PMI or private mortgage insurance. Maybe you have achieved that benchmark of 20% equity in your home. Now you can possibly get rid of that high-cost insurance! Achieve the best of both worlds.
6 Reasons to Refinance Your Home: #2
My credit score has improved:
If your credit score has gotten a significant boost, you may also be able to refinance and get a better rate. We pay for our credit. Both good and bad. It is how lenders mitigate their risk! However, many homeowners are overpaying on their mortgage because of past credit. If you have been working hard, taking care of past issues, then seen your credit jump 20+ points and stay there, it may be time to refinance.
6 Reasons to Refinance Your Home: #3
My adjustable rate mortgage is getting ready to move:
The ARM (Adjustable Rate Mortgage) is a powerful tool in the purchase or a refinance of any property. However, because of the nature of the product, it is market-driven. You can go from secure to payment fluctuation that your life and finances are simply not ready to handle. Also if rates are low on the fixed-rate side, it makes total sense to lock and secure payment for the next 15 or 20 years.
This concludes part 1 in the 2 part series on the 6 reasons to refinance your home. Come back as we talk about the 3 other reasons that most homeowners miss out on.