Refinancing: When and why to do it?

When and Why are important questions along with Who and What when it comes to refinancing!  It seems like it's the latest thing to do - you hear about it all over the news!  Hey, you can save $120 a month if you refinance now - it can save you thousands of dollars over the life of the loan and no closing costs!  What you are not hearing is that it can also be a way for a lender, (Who) to strip your equity out of your home - just so they can make money - and laugh all the way to the bank!  This is also known as "Churning" a mortgage - check out this topic on Google!  You see it still costs you closing costs when you refinance, they are just increasing the interest rate to pay for those costs, so you could have gotten an even better deal if you had paid the closing costs out of pocket.  Nothing is free!  Now that you know "the rest of the story", there are legitimate reasons to refinance, so let's explore those options.

Lowering Your Payments

The general rule of thumb when refinancing is to lower your interest rate by 2%.  It will take about 5 years to make up the closing costs, so you want to make sure you are staying in your home for a while when you do this.  Is your goals to lower your rate and consequently your mortgage payments?  Perhaps you are presently in a mortgage with an adjustable rate mortgage (ARM).  Depending on how long you have been in the ARM, you have to do the math to see if it benefits you.  If you are not expecting to sell your home in the near future (about five years), a fixed-rate mortgage can especially be a wise choice. 

Getting Out Some Cash

Are you refinancing primarily to pull out some of your equity for an infusion of cash?  Perhaps you need to pay for home improvements, pay your child's college tuition bill, or take your family on a dream vacation.  However, if your interest rate is currently high and you've had it for a long time, you could be able to accomplish your goals without making your mortgage payments much larger.

Consolidating Your Debt

Do you want to pull out a portion of your equity to consolidate additional debt? Excellent idea! If you have the equity for it, taking care of other high interest debt (like car loans, credit cards, student loans, or home equity loans) means you may be able to save hundreds of dollars in your monthly budget.  Just make sure you pay off the credit cards each month from this point forward!

Paying it off Faster

Do you plan to build up equity more quickly, and have your mortgage paid off sooner? If this is your plan, your could refinance to a loan program with a shorter term, such as a 15 year loan.  On the other hand, you may want to do the math.  It could prove to be more beneficial to just pay more each month on your mortgage and save the $5,000 it would cost to refinance!  You can build up equity quicker.  To help you understand your options and the numerous benefits of refinancing, please contact us at 941-504-1445.  I am are here for you.