As a homeowner, you might hear the term “Refinance” thrown around often. Depending on your financial situation, the current mortgage market and what your future goals are refinancing might make sense.
What exactly is a refinance?
A mortgage refinance is when you replace your old mortgage loan with a new one. Your new mortgage will pay off the remaining debt and put you in a new mortgage with different terms. Often this is not using your current lender/servicer. There are many different reasons you may refinance and can depend on your current situation.
Reasons you might refinance:
Consolidate high-interest debt
If you have accumulated a large amount of high-interest debt such as credit cards, personal loans, or pay-day loans, using a refinance can be a great tool to merge it. This would take all the higher interest debt and combine it into your mortgage, meaning you have a single lower interest payment to make every month.
Who this makes sense for: People with thousands of dollars in credit card debt that will not be able to get the balances down due to the interest.
Who this does not make sense for: People with small amounts of lower interest debt or people that cannot stop using credit cards.
Renovate your home
If your kitchen or bathroom is outdated, you may be able to use a refinance to tap into your equity. If you have owned your home for a few years and the market is trending upwards, there is a good chance your home will be worth more than the amount of your mortgage. If this is the case, you can use some of this equity to pay for renovations.
Who this makes sense for: People with large amounts of home equity that are looking to increase the value of their home.
Who this does not make sense for: People that don’t have enough equity in their home to cover the renovations.
If you currently pay PMI (Private Mortgage Insurance), you could use a refinance into a loan without it. This will depend on your current LTV (Loan-To-Value) ratio. Click here to schedule a call with a mortgage specialist who can tell you whether you could get rid of PMI.
Who this makes sense for: People that have a loan-to-value ratio of 80% or lower.
Who this does not make sense for: People that have been in their home for a short amount of time.
Lower your interest rate
If interest rates are lower than when you bought your home, you could do what is called a rate and term refinance. This would pay off your old mortgage without pulling out any of your homes equity and secure a new loan.
Who this makes sense for: People who have been in their homes for a couple of years and have an interest rate higher than the current rates.
Who this does not make sense for: People who have been in their homes for under a year.
Refinances can be a great tool for many families. Interested in seeing if a refinance makes sense for you? Click here and speak with a mortgage specialist. They can look at your current financial situation and advise you on what your options are.