There is a popular narrative being floated in the financial world that if you refinance your mortgage, you are digging a deeper hole! That starting all over again, you are in fact going backward. However, is this really the case?
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:
The value of your home in August 2018 was $300,000.
The value of your home (as an estimate) in August 2020 is approximately $330,750.
You have built equity and that has nothing to do with your mortgage. In essence, you are $30,000 to the plus! You won’t be going backward.
Now let’s consider debt:
$15,000 in credit card debt: average monthly payment is approximately $450.00 per month.
$45,000 in student loan debt: the average monthly payment is $460.00
$275,000 mortgage payment for principal and interest and is approximately $1196.00 monthly.
Just these three items come 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: $1383.00 Your savings in real money is almost $850.00 a month! $850.00 a month. This is over $10,000 a year in 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!