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:
- The value of your home in August 2018 was $300,000.
- The value of your home (as an estimate) in March 2021 is approximately $340,750.
- 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:
- $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 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!