It used to be there was only one reason why you would want to refinance your home — to lower your monthly mortgage payment.
Over the past 12 months, as mortgage rates have begun to slowly creep upwards, there’s a couple of other reasons fueling the continued refinance boom. Read on to see if any of these may make sense for you.
Reason #1 – Lower Your Monthly Mortgage Payment
Of course, as already mentioned, this is the most popular reason why homeowners seek to refinance. With mortgage rates still near all-time lows, homeowners are finding home refinancing can save thousands of dollars each year on their mortgage.
People who bought their homes in the 1980’s and 90’s are finding today’s mortgage rates are much lower than what was available 10 or 20 years ago.
The general rule of thumb for this type of refinance goal, is if your existing mortgage rate is 1% higher than current market mortgage rates, it’s best to pursue refinancing.
However, some homeowners may find that even a slight rate reduction is enough to justify refinancing their home. Especially if it is a low-cost or no cost refinance (little or no refinance fees).
A phone call to a mortgage bank or broker, can yield savings over the next 30 years. If your goal is to lower your current mortgage payment, simply ask for quotes from reputable banks. These lenders can be found online, or you can choose to go with a local option to refinance your home.
Reason #2 – Pay Off Your Home More Quickly
By moving from a 30 year fixed mortgage to a 15 year fixed mortgage, homeowners can pay off their home twice as fast.
If you have an existing 30 year mortgage and are looking to refinance your home, you may want to look at 15 year rates and see if you can build equity more quickly in your home while keeping your payment each month roughly the same as it was before.
Prudent financial advisors are encouraging homeowners to pursue 15 year fixed mortgages as there’s much less overall interest cost for the life of the loan.
In fact, in 2013 President Obama was encouraging homeowners who were underwater with their mortgages to refinance and seek out 15 year fixed instruments.
Another way of achieving this same objective is to refinance your home to a lower 30 year fixed rate but keep your payment amount the same as it was with the higher rate mortgage. In effect, you will be applying more of each payment towards the principle of your mortgage loan, and paying off you home faster.
Reason #3 – Take Cash Out – Refinance Your Home
Many homeowners are looking to consolidate debt, finance home projects, or need cash to pay for an unexpected expense. Refinancing and taking cash out of your home can be a financially savvy way to get access to needed funds.
This works by refinancing your home and specifying to the lender that you would like to receive a certain amount of cash back at closing.
In order to qualify to receive a cash at closing, you need to have built an amount of equity in your home. There’s no real rule of thumb here. Some lenders will be more than welcome to give you a substantial amount of cash at closing as long as your total loan amount doesn’t exceed the overall total value of your home — and of course, your income qualifies to service this additional debt.
Lenders are open to this idea since it simply increases the amount of interest you’ll be paying them. Obviously you will be paying for this cash, but typically it will be at a much lower rate than credit card debt or any other source of debt available to consumers.
If cash is important to you, especially if you’re trying to consolidate higher interest debt, it may be worth your while to consider moving to an even higher mortgage rate than you have currently. You’ll find that mortgage debt is much cheaper than any other form of personal debt.
For example, with 30 year mortgage rates hovering around 4%, mortgage debt is much cheaper than typical credit card debt at 15 to 20% annual rates.
if you have a lot of credit card debt, especially debt from several different credit cards, refinancing even with a higher mortgage rate and taking cash out makes a lot of financial sense in terms of saving for you down the road.
Overall, there can be many reasons why you’d want to refinance. If you’re interested in pursuing refinancing your home, you can use a service like SproutQuote.com to get quotes from multiple lenders. You’ll only need to fill out one form to receive up to three quotes in real time. In
essence having each lender present their best rate and compete for your refinance business.