Home Refinance

With historically low interest rates, you’re probably seeing a fair share of news items declaring what a great time it is to refinance your home. After all, refinancing can be a smart financial move if it results in lowering monthly payments, reducing loan duration, or building home equity more quickly. But the bigger question lingers: How soon can you (or should you) refinance after buying a house or condo?

Before contacting a loan officer or mortgage servicer about refinancing, take a read through the next few sections of this post to see if refinancing is right for you.

What does it mean to refinance? 

Simply put, refinancing is replacing your current home loan with a brand new one. Here’s why that might be an option, even if you have a decent rate already: 

  • You want to reduce monthly payments with a lower interest rate or a longer-term (or both)
  • You’d like to pay off your mortgage faster by shortening the terms 
  • You’ve re-evaluated having an adjustable-rate mortgage (ARM) and want to convert it to a fixed-rate mortgage
  • You’ve got financial hardships, home improvements, or a major purchase on the horizon and you want to tap into your home equity
  • Your credit rating has improved making you eligible for a better rate
  • You want to get rid of PMI (private mortgage insurance) that came with your original loan
  • You’ve since gotten married or divorced, and you want to add or subtract someone from the loan

 How soon can you refinance a home after purchase?

The answer may be “sooner than you think,” although it depends on the refinance program you’re looking for, the loan type, and if any penalties apply. It may seem foolish to refinance soon after you went through the process and paid closing costs on your original mortgage, but in some cases, it could save you big money over the life of the loan. 

Although you can technically refinance immediately, some lenders may require you to wait months before refinancing with the same company. If taking advantage of better terms is your main consideration, the path may be clearer. Here are some mortgage refinance rules and time frames to consider: 

  • A cash-out refinance, in which you are borrowing extra funds against your home equity, typically has a six month waiting period (and you probably don’t have that much equity invested in that short timeframe anyway).
  • If you went into mortgage forbearance or had your original loan restructured to allow you to skip or temporarily reduce monthly payments, you may be required to wait up to 24 months before refinancing.
  • If your original mortgage was funded with an FHA loan and you want to refinance it with an FHA Streamline Refinance, you’ll be asked to wait 210 days from the original closing date.
  • It’s typically easier to qualify for a straightforward rate and term refinance as they rarely have a waiting period.
  • Even if your current mortgage rate is only slightly higher than today’s rate, a small drop could save you thousands of dollars over the life of your loan. You’ll reap more long-term benefits if you refinance sooner rather than later when rates might not be this good. 
  • Some loan products have penalties for pre-payment if you refinance your loan within the first three to five years. 

 How long are you planning to stay in your home? 

Answering this question will help you determine if refinancing will even make sense financially. Why? Like your original mortgage, refinancing will require an appraisal, an inspection, and closing costs — somewhere in the range of 2% to 5% of the loan value. Will you be in the home long enough to recoup those fees? 

Let’s look at a hypothetical situation: Imagine your current mortgage is $1500 a month, but you’re thinking of refinancing. Closing costs and other fees are estimated to come to $4800, but your monthly payment is expected to drop by $200 a month. With an annual savings of $2400, you’d only start to see real savings after two years. 

Do you intend to stay in your home for at least that long? Refinancing might make sense. If you are not planning to stay put for more than a couple of years, your potential savings may not cover the cost of refinancing. Obviously, your math will differ.

Consider your credit report
Taking out a mortgage can impact your credit report, and if you haven’t had your home for very long, you’ve probably not made enough monthly payments to boost your score yet. Applying for a refinance loan shortly afterward pings your credit report once again and could affect your eligibility. This could make it challenging to get a new loan to replace the old one or negatively impact the rate you’re offered. 

Is the time right?
Refinancing is totally worth it if the time is right, and it can be an easy, straightforward process when you work with an experienced local loan officer

Refinance Your Mortgage

If 2020 taught us anything, even the most “secure” companies and industries are laying people off.  Those left behind regardless of position have been asked to do 2x or 3x as much with the same compensation.  Maybe now, you have the itch to do your own thing!

Smart Debt?

Debt without question is a natural course of doing business or being an entrepreneur.  Just like our personal lives, there is good debt vs. bad debt.  Let’s break it down:

  1. Credit card balances and cash advances:  No, never.
  2. Kabbage:  This service will lend based on accounts receivable. There are lengthy costs associated with it.
  3. Factoring:  Same concept as above, but even more expensive.
  4. Loan against 401k:  No, no, no.  Did we mention NO!
  5. Title loan on your car:  32% interest (varying by state) is a no-win situation.
  6. Borrowing from friends and family:  Only a good idea if you never want to talk with them again.
  7. SBA loan:  Sounds simple on paper.  In reality, it is very difficult to get.  You have to not “need” the loan to get it.

The above are perfect examples, and yet still more exist. Another risk is using the wrong assets to start your business.

Should I or Shouldn’t I?

Good debt, or smart debt, is about managing your risk and money. It is about taking the pressure off your business to have the ability to pay you immediately.  It allows you to have a low-interest rate and a long term that can be tax-deductible.  Good debt?  That is your home.

People would say never put your home on the line!  Well, the reality is your home is always on the line.  Whether you utilize smart debt, good debt, or refinance.  

Here are a couple of ways you can utilize a refinance:

  1. Your ability to pay off all your debt to a single payment.  Savings of a hundred, maybe even a thousand plus per month.
  2. Securing your best asset (your home) to the lowest possible payment with cash out!
  3. Keep your cash in the bank.  Let’s say you have $40,000 in savings and $40,000 in available equity.  Cash is king, keep that in your bank balance.  Borrow $40,000 in the form of a refinance to start and run your business.

Experts are experts.  There is smart risk vs high risk.  There is smart debt vs bad debt.  Refinancing your home for rate and term or cash out is the most powerful business tool you have (outside of yourself).  Use good debt smart debt to build your business and your dreams.

 

House photo

There seems to be a common misconception out there from financial gurus that refinancing your home, under any circumstance, is a bad idea.  However, what these TV “talking heads” fail to realize is, that is just not practical.

Financial pundits will tell you refinancing your mortgage means you have to start all over again.  While that may be true, the “cost of money” is a very real thing! You are not digging a deeper hole, in fact, you are most likely lifting yourself out of one!

There are many factors to consider in a refinance of a mortgage.  Let’s consider a few questions:

  • Have you been making payments on a current credit card or credit cards only to see the balance stay the same or increase?
  • Have you recently or within the last 18 months did balance transfers from multiple credit cards to one?
  • Do you have a home equity line of credit or a home equity installment loan?
  • Do you have more than 2 years remaining on student loans?
  • Do you have multiple no payments finance deals getting ready to expire in 12 months?
  • Do you expect to move in the next 16 months?
  • Is this your “forever” home?

Now, did you answer yes to 3 of any of the above questions?  If so, then let’s talk about a refinance.  Before we do, let’s talk about the appreciation of your home.  Most homes in the United States appreciate in value year over year.  In fact, the nationwide average is 3% to 5% yearly.  This is a conservative estimate, especially in today’s real estate market.

If you have been in your home for 2 years now, let’s consider a scenario:

  1. The value of your home in August 2018 was $300,000.
  2. The value of your home (as an estimate) in March 2021 is approximately $340,750.
  3. You have built equity and that has nothing to do with your mortgage.  In essence, you are $40,000 to the plus!  You won’t be going backward.

Now let’s consider debt:

  1. $15,000 in credit card debt: average monthly payment is approximately $450.00 per month.
  2. $45,000 in student loan debt: the average monthly payment is $460.00.
  3. $275,000 mortgage payment for principal and interest and is approximately $1196.00 monthly.

Just these three above items total to $2100.00.  Plus, $910.00 per month may not be tax deductible.  However, for this post, let’s not complicate that calculation.

If you refinanced right now at today’s current rate, assuming good credit: $1,383.00  Your savings in real money is almost $850.00 per month! This is over $10,000 a year of real cash in your pocket.

Let us be clear, this is not an offer for a mortgage.  The calculations above are for illustration purposes only.  A mortgage professional will assist in helping you understand rates, terms, credit scenarios, and appraisals.  However, with that being said: are you starting over?

Imagine what your finances would like with an additional infusion of cash at a level of $600, $800 or $1000 dollars monthly!  It would be significant and would have an impact. You are not starting over.  In fact, in doing a refinance the proper way, you will be light years ahead in debt, savings, and the elimination of massive interest charges.  It’s time to meet with a mortgage pro!

Close up hand of man signing signature loan document to home ownership. Mortgage and real estate property investment

Mortgage rates are around record lows. However, rates are starting to move upward.  That news may have you asking yourself if it is time to refinance your current mortgage? Is it time for you to refinance your home loan? The decision is not a simple slam dunk. Here are three questions to ask yourself first:

1. How long do you intend to be in your home?

Refinancing your mortgage costs money.  If you are planning to move in the next three years, the savings may be minimal. You may not live in your home long enough to cover the costs of getting the new loan. Instead, focus on getting in the best shape financially through paying bills on time, keeping other debt low and saving for the transition.  If you are going to be there for over 3 years, the cost makes sense both in the short and long term.  However, a financial plan to look at your overall financial picture should be in order.  Focus less on the cost to refinance, focus more on the improvement you could be making in eliminating credit card debt and other high rate bills!

2. Where does your mortgage stand now?   

Beyond your current Interest rate, consider your principal balance, payment amount and the time left on your loan. If your principal balance is low, you may not gain from a lower interest rate because most of your monthly payment is going to paying down the principal, not toward interest.

In the scenario above however, in taking advantage of a refinance you could pay off your home exponentially faster!  Lower rate, and converting your 30 year term to a 10 may make both short and loan term sense.

Flipside:

If your interest rate is significantly higher than what you’d get through refinancing — say 4% or 5 % — then a lower rate may save you money.

3. Do you have the money, time and credit history to refinance?

Closing costs are an integral part of the mortgage process. They are due when you finalize or “close” your loan. These fees include the mortgage application fee, appraisal, attorney’s fee, title insurance and other charges. Closing fees vary by state, loan type and mortgage lender, but the average cost of refinancing is around $5,000 (varies on lenders program).  Run the numbers to see.

Refinancing is time-consuming. At the very least, you need to share up to three years of taxes, a current pay stub and a net worth statement. A mortgage provider may request even more paperwork. 

You need a good credit score. This may not be the year for you to refinance, even with low rates. The past year has wreaked havoc on many people’s finances. If your debt is high versus your income or you have been late with payments due to the pandemic, you may not qualify for the great rates. Get your financial house in order and then apply for a new mortgage. 

These 3 questions should be leading to look at your entire financial picture.  When we look at our picture, it should lead us to set real, tangible goals.  You should ultimately be asking, what does my financial picture look like at the end of the mortgage?  That is a question that needs to be answered today!

House

The decision to refinance your home depends on many factors, including the length of time you plan to live there, current interest rates, and how long it will take to recoup your closing costs. In some cases, refinancing is a wise decision. In others, it may not be worth it financially.

Because you already own the property, refinancing likely would be easier than securing a loan as a first-time buyer. Also, if you have owned your property or house for a long time and built up significant equity, that will make refinancing easier. However, if tapping that equity or consolidating debt is your reason for a refi, keep in mind that doing so can increase the number of years that you will owe on your mortgage—not the smartest of financial moves. 

Reasons to Refinance

So when does it make sense to refinance? The typical should-I-refinance-my-mortgage rule of thumb is that if you can reduce your current interest rate by 1% or more, it might make sense because of the money you’ll save. Refinancing to a lower interest rate also allows you to build equity in your home more quickly. If interest rates have dropped low enough, it might be possible to refinance to shorten the loan term—say, from a 30-year to a 15-year fixed-rate mortgage—without changing the monthly payment by much.

Consider How Long You Plan to Stay in Your Home

In deciding whether or not to refinance, you’ll want to calculate what your monthly savings will be when the refinance is complete. Let’s say, for example, that you have a 30-year mortgage loan for $200,000. When you first assumed the loan, your interest rate was fixed at 6.5%, and your monthly payment was $1,257. If interest rates fall to 5.5% fixed, this could reduce your monthly payment to $1,130—a savings of $127 per month, or $1,524 annually.

Your lender can calculate your total closing costs for the refinance should you decide to proceed. If your costs amount to approximately $2,300, you can divide that figure by your savings to determine your break-even point—in this case, the home for two years or longer, refinancing would make sense one-and-a-half years in the home [$2,300 ÷ $1,524 = 1.5]. If you plan to stay in the home for two years or longer, refinancing would make sense.

If you want to refinance with less than a 1% reduction, say 0.5%, the picture changes. Using the same example, your monthly payment would be reduced to $1,194, a savings of $63 per month, or $756 annually [$2,300 ÷ $756 = 3.0], so you would have to stay in the home for three years. If your closing costs were higher, say $4,000, that period would jump to nearly five-and-a-half years.

Consider Private Mortgage Insurance (PMI)

During periods when home values decline, many homes are appraised for much less than they had been appraised in the past. If this is the case when you are considering refinancing, the lower valuation of your home may mean that you now lack sufficient equity to satisfy a 20% down payment on the new mortgage.

To refinance, you will be required to provide a larger cash deposit than you had expected, or you may need to carry PMI, which will ultimately increase your monthly payment. It could mean that, even with a drop in interest rates, your real savings might not amount to much.

Conversely, a refinance that will remove your PMI would save you money and might be worth doing for that reason alone. If your house has 20% or more equity, you will not need to pay PMI unless you have an FHA mortgage loan or you are considered a high-risk borrower. If you currently pay PMI, have at least 20% equity, and your current lender will not remove the PMI, you should refinance.

Debt

This is the number 1 reason to refinance a mortgage for many homeowners!  Look at these shocking numbers across the boards:

Americans may have a love-hate relationship with their credit cards, but that’s not preventing them from piling on debt.

The country’s outstanding credit card and other types of revolving debt have jumped almost 20% from a decade ago, reaching an all-time high of about $1.1 trillion, according to a recent study from CompareCards.

The average balance on a credit card is now almost $6,200, and the typical American holds four credit cards, according to the credit bureau Experian. Credit card issuers are also giving Americans more room to run up debt, boosting the typical credit limit by 20% over the last decade to $31,000.

If this is you, this is the very reason to consolidate and get rid of this debt.  You must be proactive in the process, not reactive in the debt process.  The cycle above will never end on its own.  No job, no stimulus, no bonus will shed the average amount of debt above.  However, your home can.  Interest will go up, not down.  There is no more down.  We cannot get lower than we have been.  The window to become financially stable is open right now for you.

 

smart money tips

Often, banks, credit unions, and brokers focus on the “mature” homeowner.  That homeowner that is married with children.  They are talking about upgrading their home for a bigger size.  Paying college tuition for their children.  Buying a retirement property.  However, what about you the 30 and under homeowner?

Under 30 Mortgage Techniques #1

FACT, you have the best of all worlds.  For one, you are building a portfolio faster than any other generation.  You are experiencing historically low-interest rates, which allows you to become more aggressive in your financial approach.  What are goals you can accomplish? 

Let’s review some of our Under 30 Mortgage Hacks:

  1. Retirement.  Yes, we understand retirement is many years off.  However, consider this illustration.  It is called the theory of compounding interest. Get the details here.  That is the clinical definition. Here is a simple one:

Rule of 72: Whichever number you divide into the number of 72, will be the time it will take for your money to double.  12% or 72 divided by 12% equals 6.  That means at an average interest rate of 12%, your money doubles every 6 years.

This is such a powerful concept to commit to. You will make your years of 45 to 60 stress free. Imagine, if you refinance your mortgage in one year’s time, you save $5,000.  At the end of the first year, you invest that $5,000.  Let’s also say you are 28 years old.  At the age of 68, you have saved $1,200,000.00!  Off of a one-time investment of $5,000.

If you refinance your mortgage, that allows you to begin to save your money for retirement or the long term. That is smart money!

Under 30 Mortgage Techniques #2: Let’s stick with the theme of retirement.  If you are a W-2 employee, in many cases you are missing out on free money.  YES, you heard that right!  Free money, in two ways:

  1. In your 401K if you contribute to your retirement, that money is not taxed.  What does that mean?  The government lets you have free money in the form of fewer taxes.
  2. Company match.  On the surface, you may think the company will match my contribution up to 6%.  That is 6% for free, in addition to the tax money! That is a huge amount of money over the course of your life.

Then, if you can refinance your home to free up monthly cash flow to make yourself money, you are going to be light years ahead of other homeowners.

Under 30 Mortgage Techniques #3

Speaking of making money, you have heard the expression “work smart, not hard.”  What that really means is that smart people put their money to use.  This is the perfect time to think about becoming a real estate investor.

Any time there are dramatic changes in the economy, inevitably there are changes in the housing market.  No matter how favorable times are, the opportunity to buy and sell a property is there.  They say it takes money to make money.  Now, you have the money!

Additionally, don’t settle on just a single source of income or a single property.  You can get a cash out refinance that will allow you to purchase a rental property.

So: Smart money makes money.  Becoming a landlord does two amazing things to your bottom line: You are taking the monthly cash flow and reinvesting and your building equity into yet another property.  

Smart Money for 30 and under homeowners opens you to a world of options in cash and asset accumulation you never thought possible.  However, you were smart enough to become a homeowner, now be smart enough to use your home as a financial tool

Saving money, home loan, mortgage, a property investment for fut

Most people don’t realize what an important financial step refinancing is. Circumstances change, and mortgages should too. If you’re wondering whether or not you’re a good candidate, here are some of the top reasons why refinancing could be right for you:

  • Your mortgage interest rate is higher than the current market interest rate.
  • You have other debt you need to reduce; such as credit cards & student loans.
  • You’re planning to stay in your home for several years.
  • You want to make home improvements.
  • You want to pay off your mortgage sooner — going from 30 to 15 in your term.
  • You have college tuition to pay.
  • You have an adjustable-rate mortgage and you want to lock in a fixed rate.
  • Your credit score has improved.

Whether you’re looking to get a better interest rate or take equity out of your home for renovations, we’ve put together a step-by-step guide on why you should refinance and how to do it.

Why Refinance?  Let’s Run through the Top Reasons!

Your life changes and your mortgage should change with it. Whether you’re moving, staying put, have a lot of expenses, or experience a change in finances, making sure your home loan is keeping up with you is of the utmost importance. Your mortgage should always be your financial tool. It should always accomplish more than a roof over your head. 

Here are the most common reasons homeowners choose to refinance:

Your Mortgage Interest Rate Is Higher than the Current Market Interest Rate

Even a small reduction in your interest rate could save you a lot of money in the long run. A refinance can help you ensure you’re getting the lowest interest rate possible. The result? More money in your pocket, for you and your family.

You’re Planning to Stay in Your Home (This Matters)

There’s no better time than right now to evaluate the type of home loan you have. When you know you’re living in your current home for several years, refinancing is a great step toward setting long-term goals.

You Want to Pay Off Your Mortgage Sooner

When rates fall, you could refinance to a lower rate and a shorter term, helping you pay off your mortgage sooner.  You should never just default to a 30-year term.  You have options as aggressive as your finances and your goals.  What does your life look like at the end of your mortgage?

You Have an Adjustable Rate Mortgage and You Want to Lock In a Fixed Rate

If your payments are already fluctuating, it is time for a fixed-rate mortgage.  It will keep your payments steady. Your rate will stay constant in a rising-rate environment. Believe it or not, rates will rise!  It may be time to lock in for long term stability.

You Have Other Debt You Need to Reduce (Most Common!)

Do you have credit card debt, student loans, or any other high-interest debt? Non-Tax Deductible Debt? A cash-out refinance could help you reduce or eliminate your debt. Debt consolidation is one of the most popular reasons people refinance. 

It is all about the cost of money. When mortgage money is this low, you have to take advantage of today’s rates or cost of money.  Why pay a high interest rate, no tax deductibility, and lower your credit score?  Plus, you are paying more monthly.

You Want to Make Home Improvements

Would your home benefit from a new kitchen, new windows or an addition? A cash-out refinance is one of the most affordable ways you can fund home improvements.  Equity is power and the ability to create additional equity is driving long term value regardless of market conditions.  Especially if you are planning to stay long term.

You Have College Tuition to Pay

Refinancing with a cash-out option can help you or your loved ones reach their educational goals as well. Whether you’re returning to school or you’re paying for your child’s college tuition, refinancing could help make it happen. Student loans can be debilitating for your child, there is a better alternative.  Second biggest expense in your lifetime!

Your Credit Score Has Improved

If you’ve worked hard to improve your financial situation by paying off credit accounts that were weighing down your score, it’s time to call your Home Loan Expert. You could qualify for a much lower interest rate if your score has substantially improved.  Credit score matters. If you paid the price to get into the home, it is now time to take advantage of “A” credit interest rates.  Why continue to overpay on your single biggest bill!

Refinance

There are many reasons to refinance your mortgage, some obvious and some a bit more obscure and/or different.

I figured I’d compile a list of the many reasons I can think of to refinance.

Some of the situations are complete opposites of one another and will depend on your unique financial goals and/or risk appetite.

However most will be appealing at times when interest rates are low, as they are now.

1. To get a lower interest rate

This one is the no-brainer that everyone will agree on. If you want a lower interest rate then refinancing is the way to go, assuming mortgage rates are lower now than when you took out your original mortgage.

The classic rate and term refinance allows homeowners to reduce their interest rate so they can enjoy a lower monthly payment.

The potential downside to this is resetting the clock on your mortgage, though you can also go with a shorter term at the same time to avoid that, and save HUGE money over the term.

2. Because your borrower profile has improved

Another reason to refinance has to do with your unique borrower profile.

Say you improved your FICO scores over the past year and cleaned up some other negative stuff. Or perhaps your home value increased enough to push your LTV into a lower tier.

If your borrowing profile has improved significantly since you first took out your mortgage, you might be entitled to a much lower interest rate than what you previously qualified for.

This could be a good time to inquire about a refinance to save some money each month.

3. To change loan products (FHA to conventional)

It could also be that you started out with a loan product you weren’t too fond of because it was the only way to qualify.

But now that you’re a better borrower with more home equity you’ve got more options to choose from.

Instead of paying mortgage insurance for life on an FHA loan, you can refinance your mortgage into a conventional loan instead, thereby removing the lifetime MI and potentially snagging a lower interest rate at the same time.

4. To reduce the loan term

Then we’ve got the folks who want to aggressively pay down their mortgages, or at least not pay them down at a snail’s pace.

If this is you, there is a huge benefit to refinancing from a 30-year fixed into a shorter term loan such as the 15-year fixed.

These shorter term mortgages also come with lower interest rates so you can pay your mortgage off a lot faster without potentially breaking the bank, depending on the rate you had and where rates are today.

5. To increase the loan term

The exact opposite group might refinance to extend their loan term, which will cost them a lot more in interest but save them in monthly payment.

Not everyone wants to pay down their mortgage in three years and for some it’s very difficult to make large monthly payments.

Perhaps a change in circumstance means a 30-year term is more sustainable moving forward.

6. To switch to a fixed-rate mortgage

We’ll put this in the common reasons to refinance. Just about everyone will suggest that you refinance out of an ARM and into a fixed mortgage if you think rates are rising.

The same is true if your hybrid ARM that was fixed for X amount of years is about to hit its first rate adjustment.

To avoid the costly rate reset you can move to a FRM before that happens. And with rates so low today, you might even get a lower fixed rate than what you had on your ARM.

7. To go adjustable instead

Of course, things also move the other way. It’s entirely possible to switch from a boring old 30-year fixed mortgage to an ARM if you want some payment relief, or simply feel you’re overpaying.

It’s also possible to refinance out of one ARM and into another ARM to not only obtain a new (hopefully lower) rate but also restart your fixed-rate period on the new ARM.

Plenty of wealthy individuals move from ARM to ARM to take advantage of cheap short-term rates while they put their money to work elsewhere.

8. To go fully-amortized

Another common scenario might be a borrower with an interest-only mortgage who is facing a recast. The IO period typically only lasts 10 years before the mortgage must be paid back in full.

To avoid a steep monthly payment increase, a homeowner might opt to refinance out of the IO product and into something fully-amortizing. Or perhaps even another IO product to extend that benefit.

9. To go interest-only

Conversely, a borrower sitting on a lot of home equity might decide it’s time to make interest-only payments to improve monthly cash flow.

This can also free up cash for other expenditures or investments the homeowner may be looking at.

After all, you don’t always want all your eggs in one basket if you’ve already got a ton of them in your house.

10. To get cash

Speaking of cash flow, you might refinance simply to get cash out of your home.

The age-old cash out refinance is a great way to free up your home equity and put it to work.

Perhaps you want to make some home improvements, or buy a second home or an investment property. Maybe you want to diversify and move your cash out of your home and into the stock market instead.

11. To buy someone out

In certain situations, you may need/want to add or remove someone from title and/or the mortgage. If this is the case, a refinance can be an appropriate vehicle to do.

Maybe there was a divorce and you’re buying someone out. Or maybe you’re ready to fly solo and remove mom and dad as co-signers.

Again, this could be a good time to snag a lower interest rate and/or make a loan product change too.

12. To protect your investment

You might also refinance to tap some of the equity you’ve gained over the years. Home values are known to seesaw over time and it could be a good opportunity now to get some of that cash for the future.

It doesn’t hurt to put aside some dry powder, especially when interest rates are low. And if you can do so while home values are high and your property is owner-occupied, that cash can be put to work elsewhere. Diversify.

13. To drop PMI

I spoke about switching loan products to drop mortgage insurance, but you can also dump private mortgage insurance by refinancing if you’ve got a low enough LTV.

If your home increased in value and/or you paid it down enough to ditch the PMI, a refinance might save you a lot of money via both a lower interest rate and from the absence of said PMI. It’s a one-two punch!

14. To apply a lump sum to lower your LTV

Similarly, you might have come across some money recently and as such have the ability to take a big chunk out of your mortgage balance.

If you’re one of those people who likes to pay down the mortgage as quickly as possible, applying a lump sum to lower the balance (and the LTV) will lead to a lower monthly payment, assuming you refinance (or recast).

A lower interest rate and/or shorter loan term could apply here as well to really speed up the loan payoff.

15. To consolidate multiple mortgages

Here’s a classic reason to refinance. You’ve got multiple mortgages (hopefully just two) and want to consolidate them into a single loan.

A refinance is often a great way to accomplish this, especially if you wind up with a lower interest rate to boot.

Many second mortgages have sky-high interest rates or are adjustable (hello HELOC), so this can be a conservative money-saving move.

16. To consolidate other debt

Another typical reason to refinance is to consolidate other non-mortgage debt, such as credit cards and other higher-APR debt.

Mortgages tend to have the lowest interest rates around, and they allow you to pay the debt very slowly, which makes it easier to manage.

Just be careful not to go on a spending spree because you still haven’t paid off the old debt, you’ve merely transferred it.

Best place to start?  Use a calculator so you can see for yourself the power of a refinance.  Go here and see the money you can save and financial goal you can achieve: <CLICK HERE>

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Without question, the last few months have reminded us that we need to expect the unexpected.  Whether it’s that you need to ensure cash reserves in the face of income loss, save for college, retirement protection, investments, or if you have plans of being an entrepreneur, we have tools at our disposal.

For the majority of Americans, our wealth is tied directly to our home. Bear in mind that as we’ve made our monthly payments, we got a return on our investment in the form of equity!  Depending on your circumstances, that equity is there for you to use in the form of cash-out refinance. You can use a cash-out refinance as a financial tool.

Right now, your plan should be to build up your emergency fund and/or max contribution to a retirement plan.  Or replenishing lost retirement savings. Investing in a college savings fund.  Or, for those that want to take it a step further, you can invest in the stock market or become a real estate investor. Let’s take a closer look at how you can use a cash-out refinance.

Expect The Unexpected

Financial wellness. We think of wellness often in nutrition, foods, and our bodies.  However, financial wellness is equally as important.  When you plan for the unexpected, you can deal with even the most stressful of events, with solid financial backing.

Remember the equity?  Yes, you can use this equity to ensure you are able to meet unexpected moments.  Now that the Fed has lowered short-term interest rates, what does this mean for you? Mortgage interest rates are lower.  Now that interest rates are lower you can accomplish two goals.  First, with a cash-out refinance, refinance your current mortgage to a lower rate and payment, cashflow!  Second, use that equity (cash-out) to put a plan and budget in place.

Emergency Fund

Regardless of your current circumstances, you must strategize to ensure you have a savings plan.  There is an old saying “too much month and not enough paycheck!” So how in the world do you save for an emergency?  Step one, we spoke about above.  Step two, debt consolidation.  Consider this scenario for a moment: If you have credit cards and student loans that cost you $800 per month in minimum or slightly above minimum payments.  You take those bills, use a cash-out refinance, and cut that in half or more?  Guess what, now you are saving about $400 per month for an emergency fund!

Smart money experts recommend having at least 3 – 6 months of necessary living expenses available.  Cash, not credit cards.  Why?  Simple: as one example, in the event of another emergency, you may not be able to pay your mortgage with a credit card.  There is a reason they say “cash is king.”  While utilizing two methods – staying at a maximum 30% level on credit card usage per month while also putting money away, you are emergency ready!

Building Retirement Funds

FACT and there is no other way to put it: tax-free money is the best money.  In fact, if you are a part of a company that has an employer 401k matching program, then tax-free and free money is the best money!  The trick is, you have to be contributing yourself.

As of 2019, the IRS allows you to contribute up to $19,000 per year to your 401(k). If you’re over 50, you’re allowed to contribute anywhere between $1,000 – $6,000 per year if your plan allows for catch-up contributions. The exact limit for these contributions is based on the type of retirement plan you have.

Are you familiar with the “Rule of 72?”  It is called the Theory of Compounding Interest.  In essence, whatever number you divide into the number 72, is the number of years it will take for your money to double.  12% into 72 means your money doubles every 6 years.  Whatever number, as this is for hypothetical purposes.  In short, retirement in your 401k or IRA allows your money and interest to compound tax-free.  When is the best time to start?  Ask a financial advisor, but the answer is right now.

If you’re behind in building retirement funds, taking cash out of your home is a perfect way to ensure you can retire and retire on time! However, do not rely on a cash-out refinance alone.  A solid plan, by incorporating elements of the above is critical.

College Fund

We have dealt with thousands of people. There has not been a single person yet that has said: “Yes, I want my kids to be crushed with student loans.”  No parent wants that for their children.  It is also not something you can save for in just one year.

The cost of college tuition will not go down. In fact, it is one of the fastest rising costs in the US.  With that, you need to be ahead of the curve.  A cash-out refinance is a perfect solution to begin or fully fund a college education.

These are just a few examples of what a cash-out refinance can do for you and your family.  How much equity do you have?  What is the right mortgage for you?  Will you qualify? Is the time right? Cash-out refinance is a powerful financial tool.  One that many people overlook.  You may have more equity and resources available to you than you even know.  Review this page, see what scenarios you connect with and what makes sense for you.

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Ask 100 people and you will most likely get 95 different answers. A mortgage, specifically a refinance, is not a “one size fits all” solution. Here are 7 steps that will help you:

Step 1: Decide what you want to get out of the refinance?  Sound easy? If you have a financial plan it may very well be. However, you should have a clear definition. It cannot be broad. It is not just a lower rate. It is not just a lower payment.  It is not a new term. What are you achieving? This is the key to your refinance success.

Step 2: Assess where you are financially.  Often we assess our financial state from the 1st through the 15th and the 16th through the 30th.  In short, when we get paid.  Where we are financially is what we have leftover when the bills have been paid.  Your assessment of your financial situation needs to include:

  • What is my credit score?
  • What is my debt to income ratio? Total income versus total outstanding debt payments.
  • What is my LTV loan to value? How much has my home appreciated or gone up in value?  How can I use that to my advantage in achieving my goals?

Step 3: Shop the best terms. Now you will hear the “talking heads” on TV say “find the best rate.” Shop the best rate. The rate can be an illusion. You are looking at the entire package.  How will that help you achieve your stated goals?

Step 4: Apply to one single source for your refinance. Applying to multiple lenders and those hard credit pulls can drive your credit score. Have conversations with a few, choose one.  Choose the one that is in alignment with your financial plan.

Step 5: Prepare all of the documentation.  All the tax returns, pay stubs, assets, credit explanation letters, savings, etc.  This will help the lender and ultimately help you in moving the process along.

Step 6: Next up the appraisal.  This is an exciting time.  Most homeowners have under-valued the worth of their home. You may be surprised by the market.  Do not allow yourself to think any improvements made will have a huge increase in value.  Unless you did total kitchen or bathroom remodels, you may be surprised at what drives up the value of your home.

Step 7: Close. Close and stick to the plan, no matter what. If you did a debt consolidation, ensure you stop using those cards and resist the temptation of acquiring new debt. It is a financial plan for a reason.

Don’t overcomplicate the process. Do not be overwhelmed. Those initial conversations without credit being pulled will tell you a great deal about the function and flow of a company or individual. It is how you connect together to ensure you achieve those goals that matter.