The idea of “refinancing” makes some people wince. Getting their first mortgage involved a lot of research and paperwork…why jump through all those hoops again? If you worked with a quality broker the first time, why would you repeat the process?
Refinancing doesn’t necessarily mean going from a “bad situation” to a “good situation.” Here are 5 reasons why a refinance might make sense for you.
This is the most simple reason for why homeowners choose to refinance their homes. If you bought your home during late 2012, you may have gotten a rate near 3.35 percent, which looks awfully nice compared to today’s average 30-year rate of 4.55%. But someone who bought 20 years ago probably got a rate around 7.0%. These people would benefit big time from refinancing at today’s rate for the remainder of their loan term.
If you want the best possible rates, you need to have a solid credit rating. That said, sometimes the need for space means that borrowers suck it up and take the higher rate so that they can get into a home. If you enter into a mortgage with fair credit, it can benefit you to develop a strategy for improving your credit score over a number of years. When your score starts to look a little more polished, you can look to refinance at a better rate.
Those first two reasons for refinancing are done with the goal of making smaller payments. Is there a reason why someone would want to make bigger payments?
Absolutely. Many people become stronger financially as their mortgage ages, because they’ve spent years accumulating savings and increasing their earnings. This means they can afford to make higher payments on their mortgage…and actually save money in the process. The longer it takes you to pay off any loan, the longer you will be charged for interest. If you pay the principle of the mortgage off several years early, that means you also skip several years’ worth of interest payments. Hence the benefit of paying more-per-month for a shorter loan period.
Refinancing can help you go on the attack with your mortgage, but it can also help you defensively as well. Any number of things can happen that make your current payment situation difficult; medical or childcare expenses that you couldn’t have foreseen years ago, or maybe your initial mortgage was just too ambitious. One strategy is to refinance for a longer period, lowering your monthly mortgage payment. Remember that this means paying more over the length of the loan…but it can help you makes ends meet for the short-term.
Want to remodel your kitchen, basement, or add some other feature to your home? Home equity refinancing can be a great tool.
Many homes add value as years roll by, which leads to equity. This is the term for additional value in your home above the value of your mortgage. If you subtract the amount you owe on the home from its current appraised value, you have equity. You can use a cash-out refinance to access this equity.
For example, if you still owe $35,000 on the home, you can tap into your equity to borrow additional funds. You may want to use $10,000 to make updates. Add this to what you still owe, and refinance for $45,000.
No matter what your reasoning, refinancing always works out to benefit the borrower in some way. If one of these reasons applies to your situation, give us a call!