Five Reasons to Refinance

Five Reasons to Refinance Your Mortgage

There is an old adage that says if you can improve your interest rate by at least two percentage points, then it is a good time to refinance. While that may work as a general rule of thumb, the truth is there are other reasons to refinance:

1. Lower your interest rate
Securing a lower interest rate is one of the top reasons for refinancing. This can make a big difference in your monthly out-of-pocket costs for housing and save money on financing fees.

2. Build equity faster
If you are in a position to make higher monthly payments due to an increase in salary or other good fortune, you may want to switch from a 30-year loan program into a 15 or 20-year loan structure. This enables you to build equity faster and save a tremendous amount of money on financing fees.

3. Change your loan program
Many homeowners who start with Adjustable Rate Mortgages desire to move to the stability of a Fixed Rate mortgage later on down the road. As interest rates fluctuate, making original deals less attractive, people will change their loan programs in order to capitalize on the best rates available.

We can provide you with loan comparison charts to find out what you can save with various loan programs.

4. Credit score has improved
If your credit score has improved as a result of making your mortgage payments on time and in full, you may be in a position to take advantage of your improved credit standing.

We can review your current credit score, the terms of your existing mortgage, and review options for other loan programs that could not only reduce your monthly payment, but also save on interest fees paid over the life of the loan.

5. Use the equity you have established
A cash-out refinance allows you to tap into the equity you have built up in your home. You may want to pay off revolving credit card accounts, send a child to college, or use the money for home improvements or personal expenses.

Regardless of your reasons for wanting to refinance, my team and I are interested in helping you make a decision that works best for you.

We will begin by reviewing the terms of your existing mortgage program. It will be important for us to know the purpose of the refinance and how long you plan to stay in the home. This helps us to determine whether or not it is beneficial for you to pay points up front to secure a lower interest rate on your new financing.

Throughout the process, we will present you with spreadsheets outlining various loan programs, and continue to monitor rates in order to inform you of the best time to refinance.

Traditionally in days past, the primary reason to refinance was to lower the interest rate. Nowadays, with the huge variety of different loan programs that each offer some specific financial advantage to a homeowner depending on his particular situation, lowering the rate is no longer the primary reason for a homeowner to refinance.

You may consider refinancing if you have a variable rate second mortgage which you would like to roll together with your first mortgage, for one lower monthly payment which is fixed.

Another reason might be if someone has just added huge escrow debt due to their backed tax that the lender paid on behalf of the borrower. Since the lender wants to get this money back within 12 months period, the borrower's monthly payment gets increased substantially. Refinancing will usually spread the borrowed escrow money over 360 month payments and thus level out your monthly obligation.

Some people will refinance if their financial situation has worsened or changed and they need to try and lower their payment(s) by increasing their loan term. Sometimes a borrower may be on a term that is less than 30 years and by increasing their loan term to 30, or even 40 years the borrower may be able to save a considerable amount of money and lower their monthly mortgage payments. This is one of the many reasons why some people refinance.

Do you have children near college age? Tuition can defiantly strain a families budget, so many people take cash out of their home equity to help with these new costs. Other people take cash out for investment, or home improvement. Refinancing is one way to help with today's high cost of living.

It's common for clients of ours to refinance in order to cover the home improvements they have planned on the home. While it will add on to the balance of your mortgage, it's also likely that the improvements made to the home will increase the value of your home. If by adding the improvements to your home you can add more value to the property than the actual cost of the improvements, the addition becomes free and you actually make money in adding the improvements.

» DISCLAIMER: The information contained in this article on 'Five Reasons to Refinance' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.