To Refinance Or Not To Refinance
Yes, refinancing your home is a major ordeal but in many cases, it is well worth it. Take a look at some of the possible reasons that you should consider refinancing that home loan.
1) Your Rate Is Too High
Right now, interest rates are lower than they have been in some time. If your current rate is much higher than 4 percent, refinancing might be worth the time and the cost.
Take a look at the savings possible with a few examples. If you have a 300,000 dollar loan at 4.5 percent and you refinance at 4 percent, you save 88 dollars a month. That can get 1000 dollars a year back in your pocket.
That same mortgage going from 5 percent to 4 percent can save you 178 dollars a month. That would get 2000 dollars back in your pocket every year.
2) You Need To Pay Off Credit Cards
It is very easy to let credit card debt get out of control. The credit card companies just make it so easy for you to spend and spend. They offer perks like cash back and points and before you know it, you have 10 to 20 thousand dollars in credit card debt. In fact, the average American household carries over 16000 dollars in credit card debt.
Refinancing your home would allow you to take out money and pay off this credit card debt. You can then pay the money off at a reasonable rate instead of the 20 percent interest you are currently paying. It would also lower your monthly bills. If you need 300 dollars a month or more to pay your credit card minimums now, that could be a huge bonus.
3) You Need To Remove A Borrower
If you are recently divorced, you may need to remove a borrower from the loan. A refi will allow you to do that.
Even if the other person has released all rights to the property, it is good to get their name officially off the loan. Psychologically, this may be enough to get you going so that you can enjoy the other loan refinance benefits like the lower interest rates.
4) Your Payment Is Not Affordable
If you are struggling to make that mortgage payment each month, refinancing may be able to help. It can lower your monthly payment, sometimes substantially.
Here are some ways that you can potentially lower your payment.
- Switch from a 15 year loan to a 30 year loan.
This would stretch your payments out over a much longer period.
- Get a new 30 year term.
If you are 4 or more years into a 30 year loan, stretching the term back out to 30 years again might be beneficial.
- Eliminate escrow shortage.
If you are currently facing an escrow shortage, you can roll the shortage into a new loan and come out with a smaller monthly bill.
- Lower interest can drop your monthly payment.
As always, a lower interest rate is always good for lowering your monthly bill.
5) You Are Paying Mortgage Insurance
If you are paying mortgage insurance, you could be paying 200 to 300 dollars more a month than you need to. That could be over 3000 dollars a year, just for PMI.
With traditional financing the mortgage insurance will drop off as soon as you hit 20 percent equity. If you have not reached that yet, you could refinance with a second mortgage to eliminate mortgage insurance.
If you have an FHA loan, mortgage insurance will never drop off, unless you initially put down more than 10 percent down, which most FHA buyers do not do. The only way to get rid of this huge expense is to refinance the loan.
6) You Need To Get Out Of An ARM
An adjustable rate mortgage is a great way to save money on a mortgage if you think that you will only be in a home for a few years. Sometimes though, we change our mind and want to stay in a home.
If you have decided to stay in your home longer that 5 years, you need to move into a fixed rate loan. Refinancing allows you to do just that and with the current record low interest rates, you can lock in at a fantastic level.
Getting rid of the ARM will give you security moving forward knowing that your monthly mortgage will never skyrocket.
7) You Want To Put In A Pool
If you want to put in a pool or do any other home improvement, refinancing can help you do that. Cash out some of the equity in your home and use the cash to pay for your improvements.
Cashing out your equity is usually much cheaper than financing a pool with traditional financing. Get a lower overall rate and you may be able to deduct the interest from your taxes.