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White and Brown House

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

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.

 

Close-up Of A House Model With Percentage Symbol And Red Roof On Wooden Desk

The elements of understanding a mortgage seem simple enough.  Your home, rate, term, taxes, insurance, and appreciation; with the primary focus being typically on the interest rate.  However, what if we said your attention shouldn’t be on the interest rate?

Mortgage 101

There are many stages to a mortgage.  They coincide neatly with the many stages of your life.  First-time homebuyers the focus 95% of the time, is “Can I afford the payment?”  Later stage homeowner, it is “Am I building equity in my home?” However, payment and interest rate are often secondary in the true cost of a home.  Today’s borrowers when looking to refinance need to understand the cost of their home.

Understanding Your Mortgage Cost ⁠— Interest Rate?

Let’s keep it simple. We’ll use some simple math to truly understand your mortgage cost or your home cost:

EXAMPLE

$350,000 Mortgage Amount

5.5% Interest Rate

30 Year Term

$1987.26 Principal and interest payment.  This excludes taxes and insurance.

(PLEASE NOTE THIS IS JUST FOR ILLUSTRATION PURPOSES)

That is the cost of your house, correct?  Nope. You have forgotten the most critical step in the process.  See below:

You now take $1987.26 and multiply that by 360 = $715,413.26

That is the cost of your home in mortgage amount and interest payments!  That is more than double the original cost of the home.

However, there is good news…

You have more options than the normal “go-to” terms and conditions.  You have the ability in a refinance to pick the best financial options that make sense for you and your situation.  While a mortgage should be about payment for most, a proper mortgage and proper refinance can do more than that.

EXAMPLE:

$350,000 Mortgage Amount on Refinance

2.99% Interest Rate

15 Year Term

$2415.35 Monthly Payment excluding taxes and insurance.

(PLEASE NOTE THIS IS JUST FOR ILLUSTRATION PURPOSES)

Now, let’s do the math and see what the cost of your home is now?  Take $2415.35 and multiply by 180, the total number of your payments.  That equals $434,763.00

Real world numbers for you:  $280,650.26.  That is real money savings.  Actual dollars, that you work for, that are saved — and almost $300,000 dollars at that!  You may ask, “I am paying slightly more per month!”  That is 100% correct. Your net savings in actual money coming from your checking account at some point is $190,650.26.

Want to see how it works for yourself <CLICK HERE>

The cost of doing business does not have to be extreme (like double the cost).  You can control the cost of doing business with a bank or mortgage lender.  

Understanding Your Mortgage, Why We Shouldn’t Pay Attention to Interest Rates!

The above was a crude example to get you to focus on the fact that the cost of a mortgage is not all about the interest rate and payment.  When doing a refinance, you don’t have to be conditioned to “accept” terms of 30 years.  Truly understanding your mortgage is seeing what in real dollars you are paying today, 5 years from now, 11 years from now and beyond.  That way, you have a plan for putting significant money back in your pocket for retirement, a college fund, and so on.  What would it look like to be debt-free or mortgage-free in 15 years?  Understanding your mortgage is about understanding your options.