Part I: Should I Refinance My Home?
To start off this 3 part series about Home Mortgage Refinancing, we want to first point out that everyone has a different financial picture, unique goals and specific reasons why a refinance may or may not be the right course of action. Always seek out a mortgage professional to discuss your scenario so that you can make the best decision for you and your family.
Thinking of refinancing? Grab our free worksheet to quickly calculate your LTV and assess all of your options here »
Is a refinance right for you?
- Mortgage Consolidation - merging your first and second mortgages into one loan.
- Debt Consolidation - merging your mortgage loans with student loans, auto loans or credit card debt.
- Secure a Lower Interest Rate - especially true if your rate is higher than the current industry rate
- Lower your Monthly Mortgage Payment - this can be a by-product of a lower interest rate as well.
- Modify the Borrowers on the Loan - this is a common need after a divorce or inheritance.
- Change Loan Type - this can include changing an adjustable rate mortgage to a fixed rate mortgage. It can also modify whether a loan is FHA or VA.
- Eliminate PMI - many people refinance to stop paying private mortgage insurance (PMI)
- Take Cash Out - this includes using some of your equity to make renovations or pay off debt.
Questions to ask yourself when considering a refinance:
Are you planning on moving in the near future?
- Yes - If you are planning on moving in the next 2 years, then it will be important to factor in exactly how much you would be paying in closing costs and whether this will be worth it over the short time you expect to be in the home. If a lower rate is significant, this might be a good time to refinance, especially if you are planning on maintaining the home as a rental.
- No - If you are planning on staying in the home for at least 2 years and you are interested in one of the reasons mentioned above - a refinance mortgage might be a great option for you (especially if it can save you money in the long run.)
Do you need access to your home's equity?
- Yes - Your home is one of the largest investments that you will ever make and if your home has grown in value since you purchased it - there may be equity that you can access. Whether you want to turn this equity into cash to pay debt, college tuition, start a business or remodel your home (and possibly increase it's value) - if your home is worth more than what you owe, a refinance might be a perfect fit.
- No - If you don't have a need to get cash-out or are intent on paying off your mortgage as soon as possible - this does not mean that a refinance is the wrong choice. Remember there are other reasons such as changing a loan type or lowering your interest rate that might be key factors over utilizing your home's equity.
Has your "mortgage/financial" profile changed...and need to be updated?
- Yes - If it's been awhile since you first purchased your home, odds are that your financial profile has had a few changes over the years. In many cases, you might have experienced improvements such as a completed college degree (and now you're working), a raise in income (due to promotions or job changes), an increased amount of time on the job, lower debt (including credit card, student and auto loans) etc. which could drastically change your credit score and loan qualifications. You might also have seen a rise in home values in your area which means you now have more equity in your property. All of these might mean that refinancing could drastically improve your mortgage loan.
- No - If you think your financial profile has stayed the same or possibly worsened since you purchased your home, don't count yourself out just yet. It's important to discuss your goals and options with a mortgage professional who can advise you based on your unique situation. They can also help give you a plan to get you ready to refinance in the future.
You can also take a moment and try out our Refinance Calculator here »
Stay tuned for Part II: Getting Ready to Refinance with Our Checklist
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