Have you thought about refinancing your mortgage? Maybe you heard that your neighbor refinanced and got an awesome mortgage rate or your family member refinanced and paid off a ton of debt, but will you be able to do the same? Most homeowners will refinance their home at some point, but it is important to have a strategy and review all of the potential benefits. Refinancing your mortgage can also be a negative, so it is important to work with a mortgage company that truly has their client’s best interest in mind.
Let’s go through many reasons people decide to refinance and see if it may make sense for you. Every homeowner has a unique mortgage situation, which means each refinance outcome will also be unique.
What is your current mortgage interest rate?
One of the most common reasons to refinance is to lower the current interest rate on a mortgage. Perhaps you took out your current mortgage when mortgage rates were a little higher and the financial markets have now adjusted to lower rates? This is a great reason to refinance and it can often result in large monthly savings that add up to tens of thousands of dollars over the life of your mortgage.
If you have a second mortgage or a home equity line of credit, the interest rates tend to be higher than your standard “first” mortgage. This is another reason to consider refinancing and combining all mortgages into one new mortgage at a lower rate, potentially saving some money.
If you think that interest rates may now be lower than your current rate, it is definitely worth finding out how much you may save per month. You may be pleasantly surprised with what your new mortgage payment could be.
How long has it been since your last mortgage transaction?
When you refinance a mortgage, you are essentially getting a brand new loan on your home. One thing to consider is how long you have been paying down that mortgage balance on your current loan.
Mortgages tend to have very specific years for how long you must pay until it is paid off. For example, you may have heard of “30 Year Fixed” which means that the loan will be paid for 30 years at a fixed interest rate until it is paid off (assuming you do not pay extra per month). There are also mortgage terms for 25 years, 20 years, 15 years, and 10 years that you may have access to.
Something to keep in mind is that if you have already been paying on your mortgage for 3 years, your new mortgage refinance may take you back out to a 30 year term taking longer to pay off the mortgage. If you would like to pay it off sooner, let’s say 25 years, this may be an option as well.
Would you like to pay your mortgage and home off sooner?
Some people refinance their mortgage to pay it off sooner! Is this something you may be interested in? This is a great choice and it is most common with people who are planning to retire in 10 – 20 years. Often, deciding to pay off your home sooner and take a shorter mortgage term comes with a better interest rate.
This option is a great one and it is important to review your goals and current monthly finances. By deciding to go with a shorter loan term, this means the monthly payment will most likely be a little higher since you will be paying it off sooner. The good news is that more of your monthly mortgage payment should be paying down your actual loan instead of going to the bank as interest payments.
What are your current debt levels?
Debt is something that most people have, but don’t want to talk about. Would you benefit from paying off high interest debt? The most common high interest debt are credit cards, personal loans, car loans and student loans. If these interest rates are higher than your mortgage payment, a refinance may be a good opportunity to look at paying these off by using cash in your home.
The great thing about owning your own home is the ability to build equity which you can access if needed. Every month you should be paying down your loan and if your home is also increasing in value then you may have a good amount of money available to access. Paying off high interest debt should be an important benefit to look at when thinking about refinancing.
Are you looking to improve your property with any renovations?
Have you thought about home improvements or renovations that you would like to complete? Some people will refinance just for this since renovations can be costly. The benefit of home renovations is that it often adds value to the property as well.
When thinking about refinancing, it is a great opportunity to consider taking extra cash out of your home to pay for any renovations instead of putting it on a credit card, taking out a second loan, or using a home equity line of credit. Check with a Mortgage Loan Originator to see how much cash out you would be able to access for this.
Do you need cash for other things?
Everyone has emergencies or important things come up that require cash. Perhaps you had an emergency, want to start a business, need to make an investment, or have to pay for a kid’s college fund soon? These are all life events that may require cash and often times a home refinance is the best way to obtain the cash you need.
When refinancing to take cash out of your home’s equity, you may use the money as you wish. Think about any future events that may require cash from you, a refinance is a great time to plan ahead.
Are you thinking about the mortgage refinance costs?
It is important that you are factoring in the cost of a refinance when deciding if you will benefit. Any mortgage transaction comes with fees which may include loan processing and origination fees, escrow fees, title fees, and other third party service fees such as an appraisal. We always recommend looking at your cost versus benefit to see if refinancing is truly the best choice for you.
If costs are a concern of yours, there may be certain ways to help lower the costs through a lender credit. Also, adding the costs into your new mortgage may be an option so you do not have to pay out of your own pocket.
Do you have Mortgage Insurance?
If you have mortgage insurance, there may be an opportunity for you to remove or lower your monthly mortgage insurance cost through a refinance. Has our home’s value gone up since you originally purchased it? A refinance will allow for a new appraisal to see if your new loan will be 80% of your new appraised value. If it is, your mortgage insurance may be removed a lot sooner than expected. Most mortgage insurance is over $100 per month and this is a great way to immediately save that money.
Even if you may not qualify to have your mortgage insurance completely removed, your monthly mortgage instance may go down during a refinance if your property value and credit score has gone up at all.
Is refinancing really worth it?
This is a great question you have! If you fall into any of the above categories, then a refinance may be definitely worth it. At the very least, it is worth speaking to a licensed Mortgage Loan Originator for a free financial analysis of your mortgage rate, home value, current debt, and upcoming expenses.
With over 16 years of residential mortgage experience, West Coast Mortgage Group has mastered the art of helping clients through the loan process. We are here to answer any questions you may have and our team is here to assist you with your home purchase, mortgage refinance, and mortgage planning. Call us at any time for a free live consultation or schedule a meeting today!