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Calculator with wooden house and coins stack and pen on wood table. Property investment and house mortgage financial concept

It seems like an obvious question, however, it is often overlooked.  When considering a refinance are you in a good financial position?  Homeowners often wait until they are in a difficult position to begin making moves.  That could be too late for lenders and yourself!

Smart Money Questions You Should be Asking:

  • Are my credit card balances above 30% of the available credit line?  For example, if you have a $5,000 credit card, do you owe more than $1500.00?  

Smart Money Says it is time to take action.

  • Do you have student loans you are making minimum payments on with more than 5 years remaining?

Smart Money Says it is time to take action.

  • Do you have auto loans in terms of 72 or 84 months?  Are payments becoming unmanageable?

Smart Money Says it is time to take action.

  • Is your business running short on cash flow?  Your receivables are running longer than 90 days?  Considering an expensive loan from Kabbage?

Smart Money Says it is time to take action.

  • Are you hearing rumblings or restructuring at work? The potential loss of time and income in the coming quarter or quarters?

Smart Money Says it is time to take action.

If you fit any of the above scenarios or dozens of other potential financial pitfalls, the time to take action is now, not until the event of the financial situation overwhelms you.

Sit with a professional and talk about your financial situation.  Have an unbiased 3rd party look at your financial picture from a number perspective.  It will be the best smart money move you make!

House Refinance

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!

6739053 - luxury home in suburbs with triple garage

November 3rd, 2020.  It is a date that we are reminded of on a daily basis.  No matter the side of the aisle you are on, you may be asking “Should I wait till after the election to refinance?”  Now as a matter of what the markets may or may not do, we will leave that to the political pundits and economists.  Let’s talk about you.

Waiting Till After the Election to Refinance is a Logical Question.

However, what you are doing here is trying to time the mortgage market.  Or, you are trying to time interest rates.  Either of which is truly a losing strategy.  In fact, in past posts, you will see clearly that interest rates may be the most irrelevant piece of your mortgage transaction.  

Some have spent a lifetime analyzing and evaluating the timing of how and when interest rates may or may not move.  The factors that go into the Federal Reserve making a rate move are far too lengthy and complex for this post.  Then how banks will react to the news is a matter entirely separate and unto itself.  If you would like a sneak peek into what influences the Fed in monetary policy, click here: Federal Reserve.

So, Should I Wait Till After the Election to Refinance?

The short and simplest answer is absolutely not.  Why run the risk?  The election is over 3 months away.  Do you want to continue paying a high rate credit card for another 3 months? Continue to pay PMI for another 3 months?  Put off saving for your retirement for another 3 months, or put off starting your business for another 3 months?  Lose out on $500 or even $1000 or more in monthly payment savings for another 3 months?  

These are examples of the risks you run in hoping to save a fractional percentage more on your interest rate.  You will be losing real dollars, real savings, and real financial opportunity.  Instead of timing, let’s talk about the best possible steps in moving forward on a refinance for you.  Click here and work some numbers, your numbers and the difference a refinance today will make.

Home photo

In part 1, we covered the basics.  In other words: we covered the normal reasons as to why you would refinance your home. Now, let’s jump into the tier two reasons.

6 Reasons to Refinance Your Home #4

Let’s pay this mortgage off:

In a previous post, we covered the ABC’s of the “cost” of your home.  In many cases, with rates being where they are, it’s now time to get serious about owning your home free and clear.  Making a simple change from 30 years to 15 years can save you tens of thousands, if not a hundred thousand plus!  

6 Reasons to Refinance Your Home #5

I want to utilize my equity:

FACT, equity can be the ultimate savings account.  For many homeowners, they don’t realize the access they have to the money they can use for major purchases or expenses.  In addition, your equity in a first mortgage possibly is the cheapest money you will ever have access to. 

Let’s dive into that:
If you have a major transaction coming up, such as college tuition, home healthcare, buying a second home, investment capital, wedding, or starting a business, people often consider other avenues for cash:

  • 401K
  • Credit Cards
  • Retirement money
  • Cashing out life insurance

Now, not to go down a rabbit hole of losing interest and value. The fact of the matter is you may have a negative tax consequence and you are also losing a potential tax deduction.  In future posts, we will break this down in more detail. But in many cases with the examples above, it is a lose-lose-lose situation.

The potential tax-deductible money in your home is the best way to acquire cash for major purchases.  Equity is buying power!

6 Reasons to Refinance Your Home #6

I want to pay off debt.

On the surface, you may think this is a no-brainer: that as a homeowner you have the ability to consolidate your debt and pay it off through a refinance of your mortgage.  In a recent survey done by Yahoo Finance, it showed only 22% of homeowners knew they could pay off their car, credit card, student loans, installment loans, personal loans, and more by refinancing their home.

Your home is a financial tool.  A refinance of your home can be utilized to achieve a number of financial goals.  These are only 6 examples of these goals; there are many, many more.  That is why the focus should not be on a rate, product, or service.  The focus should be on: what will my home refinance achieve?  Once you can answer that, the goal is accomplished.

 

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.