Mortgage rates are at some of the lowest levels since November 2016. This means that you may be one of the many borrowers with mortgages that are “refi eligible.” So, it might be time to think about the numerous benefits of refinancing your home.
Here are six reasons that are common for refinances:
- Lower your current interest rate and monthly mortgage payments
Think about all the possibilities with some extra cash in your pocket each month. You could put that money into an emergency savings fund or pay down high-interest debt faster. Or take the opportunity to invest more in a retirement savings account.
It’s also important to consider your breakeven on costs for a refinance versus the monthly savings.
- Pay off your current mortgage faster by shortening the term
If paying less interest appeals to you, take the opportunity to get a shorter term, such as going from a 30-year mortgage to a 15-year mortgage. The amount you will save in interest could be substantial. This can be very powerful if you ever have thought about turning the property into a rental property.
- Eliminate monthly mortgage insurance
Are you one of the many homebuyers who put down less than 20%? You may be paying for monthly mortgage insurance. A refinance in today’s market could eliminate the need for mortgage insurance — and bring your interest rate down, too depending on the amount of equity in your home. This double effect can make a huge difference in monthly savings.
- Consolidate expensive, higher-interest rate credit card debt
Keep in mind though that a debt-consolidation refinance increases your mortgage debt, reduces equity, and extends the term on shorter-term debt by securing such debts with your home.
The relative benefits you receive from debt consolidation will vary depending on your individual circumstances. You should consider that a debt consolidation loan may increase the total number of monthly payments and the total amount paid over the term of the loan.
- Cash out to pay for home improvements
Don’t pull funds from your savings or charge up high-interest rate credit cards! Make those home improvements by cashing in on the equity you already have earned. Depending on which improvements you make, you may even increase the value of your home. That would generate even more equity.
Proceed with caution as not all improvements add value to your home. It’s a good idea to consult with a real estate professional before embarking on home improvements.
- Replace an adjustable-rate mortgage (ARM) with a fixed rate
ARMs can be a great option, but as we know, there is some risk involved and not everyone is comfortable with that risk. With lower rates, it’s easier to explore your no out-of-pocket options, including potentially rolling closing costs into your loan. With a fixed rate, you get peace of mind with a reliable monthly principal and interest payment.
There are many reasons you might consider refinancing your home mortgage. Early 2020 is a promising time for you to get some extra cash in your wallet. If you are thinking about refinancing, feel free to reach out! We are here to answer any questions you may have or provide a complimentary loan consultation.
The views and opinions expressed in this article are those of the author and do not necessarily reflect or represent the views, policy, or position of Planet Home Lending, LLC.