Refinancing Your Mortgage
Refinancing a mortgage loan is a reference to the paying off of an existing home loan and replacing it with a new one. When done correctly, this can often result in many desirable outcomes for the home-owner, which we will take a look at here today. While this mini-guide can help answer some of your basic questions regarding the refinance process, it is recommended you schedule a brief, no-pressure Mortgage Strategy Session here: Click Here – This free answer session will allow you to learn specific details about how you might benefit from a refinance.
Let’s get started with the basics:
Reasons To Refinance
- – Lower your interest rate
- – Lower your monthly payment
- – Shorten your mortgage term
- – Convert an adjustable-rate mortgage to a fixed-rate mortgage
- – Consolidate debt
- – Access cash from your equity for various purposes
While there are many great, financially sound reasons to refinance an existing mortgage, there are also circumstances where you should not refinance. For example, many consumers will begin a refinance with the intent of consolidating high-interest credit card debt. While this can be a worthy intent, if those same borrowers complete the process, pay off the amounts owed, only to use this as an excuse to re-load their credit cards with all new debt (Frivolous spending) then the refinance was most certainly not worth it.
Remember, a refinance is a tool to be used when there is a clear-cut benefit. Not a means to enable repeated spending sprees that are detrimental to your financial well-being. Let’s take a closer look at some of the more common reasons to refinance.
Securing a Lower Interest Rate
One of the best reasons to refinance is to lower the interest rate on your existing loan. A general rule of thumb is that it can be worth the money to refinance if you can reduce your interest rate by at least 1%. Of course, this is only true if you will remain at the residence for a long enough period to recoup any costs associated with the refinance and still realize a savings.
Reducing your interest rate will not only save you money on your monthly payments, but it will also speed the rate at which you build equity.
Shortening Your Loan Term
If you are fortunate enough to enjoy a lower interest rate while simultaneously shortening your loan term, it may be possible to enjoy being debt free sooner without experiencing a large increase in monthly payment. In some cases, homeowners are saving tens of thousands of dollars in overall mortgage re-payment by taking this approach.
As a general rule of thumb, a shorter mortgage term will offer a lower interest rate than a longer term.
Converting An Adjustable-Rate To Fixed-Rate
Many homeowners start out with ARMs (Adjustable Rate Mortgage) as an attempt to keep their monthly payments low. This is great early on, but over time, that interest rate will adjust. More often than not, the adjustment is higher, not lower. Naturally, there are many factors that will influence how much your interest rate can adjust per adjustment period. However, many home-owners prefer the unchanging nature of a fixed-rate mortgage if they intend to remain at their current home long term.
With that said, in a falling rate environment, an ARM can offer you the chance to potentially tap into a lower rate for each adjustment period – Meaning your monthly payment would drop. Since there are multiple factors and influences at work here, it’s highly recommended you speak with a qualified mortgage professional to analyze your current situation, and compare with the current mortgage rate environment to see which option would work best for you.
Consolidating Debt And Accessing Cash
Homeowners often tap the equity in their homes to cover large expenses such as a remodel or renovation project, a child’s education, or even emergencies. This spending can often be justified when you’re adding to the value of your home, or paying off expensive debt, but we recommend a complete financial analysis before jumping to any conclusions to make certain you’re making a sound financial decision.
We understand that the lower interest and often tax-deductible nature of a mortgage can make it tempting to jump in both feet first. But the prudence of a well-considered analysis will help you to see all sides of the situation and arm you with the data to make a decision you’ll be happy with and benefit from for years to come. Arrange a free, no-pressure Mortgage Analysis by CLICKING HERE.