There are many reasons to refinance your mortgage, some are very obvious and some are not. Here are several reasons to think about a refinance and with rates as low as they are, it may be a great time to consider it!
- To get a lower rate. Never really thought I would say that after rates starting going up a year ago!
- Because your situation has improved – usually your credit. Maybe your credit scores have gone up substantially and you may qualify for a better rate or maybe your home value has improved to help your situation.
- To switch loan products. Typically this means going from FHA to conventional and hopefully getting rid of mortgage insurance, if not now, knowing you will be able to eliminate it at some point.
- Reduce your loan term. This is a very popular reason to refinance, many people will go from a 30 to a 20 or 15 year term. They will save thousands in interest by paying it off sooner!
- Increase the loan term. Some have decided they need a longer term – maybe going from a 15 to a 20 yr (or even back to a 30 yr) to lower their payment. Maybe their financial situation has changed and they need a lower payment.
- Switching to a fixed rate. Many people with adjustable rate mortgages look for fixed rates as the rates drop. The fixed rate is typically a more secure mortgage since your interest rate won’t change.
- Switching to an adjustable rate. Some use a refinance to get a lower rate on an ARM – maybe from an ARM to another ARM, or a fixed rate loan to an adjustable rate.
- To get cash out. With interest rates so low, many are taking cash out and investing it in other places. It may be used for home improvements or a second home – or maybe you want to invest it in the stock market or some other investment.
- To buy someone out. Did you buy your home with someone else? Is it time to look at buying their share of your home? This might be a good time to refinance and pay off that person that helped you buy the home.
- To drop your mortgage insurance. If you have enough equity, you may want to refinance to lower your rate and remove your mortgage insurance. Or for some, it’s a matter of lowering the amount they pay in MI if the equity position has changed.
- To consolidate mortgages. Maybe you have a first and second mortgage, you may want to refinance to pay off the 2nd mortgage and just have one payment.
- To consolidate other debt. Do you have a lot of credit card debt at higher interest rates? Maybe you want to refinance that debt into your mortgage and get a lower interest rate and know it will get paid off. Just be careful that you don’t go crazy with a new spending spree and charge the credit card debt back up.
There are many reasons to refinance. This is just a few! You need to make sure that whatever you decide, it makes sense to do. Just because rates are low isn’t always the right reason. If you are going to sell your home soon, it may not make sense to do anything. Figure out how long it will take you to recoup any fees and make sure you are still going to be in the home that long! If it makes sense to do, call me with questions!
Leslie Vanderwerf, NMLS ID#335509, American Mortgage & Equity Consultants, Inc., An Equal Housing Lender, NMLS#150953 – Email – Website
