Long gone are the days of using your home as a personal piggy bank. For years many homeowners watched as home values increased which gave them plenty of equity. This in turn led to constant refinancing whenever rates would dip down. But that trend evaporated after the huge mortgage debacle.
However, with rates still at or near all an all-time low, homeowners should once again take a look at refinancing. The question of should you refinance your mortgage is always a ‘yes’ if you fit into any of these categories.
1. Saving Money – Lowering your interest rate will lower your monthly mortgage payment as well as reduce the total amount you pay over the life of your loan. Reducing your interest rate .5% on a $250,000, 30 year fixed loan reduces the monthly payment by $76 per month and saves $27,360 over the life of the loan.
2. Changing an ARM to a Fixed Rate – For a while Adjustable Rate Mortgages (ARM) were all the rage because of the lower initial interest rate and thus lower mortgage payment. However with fixed rates being so incredibly low, it makes better sense to convert to a long term fixed rate to protect yourself from future rate spikes which then increases your monthly payment.
3. Avoid Foreclosure – People who are upside or behind on their mortgage should explore all options to refinance. The government has stepped up programs to try and help more people save their homes. Step one is to approach your lender for options such as a modification or refinance.
4. Tapping your Equity – Some homeowners are lucky enough to have equity in their homes. You can do a cash-out refinance to utilize that money for other needs such as paying off higher interest debts or other expenses such as college for your children. With the low rates available you might even have a similar payment. But you should contact a lender such as the Bank of the Internet for specific information on refinance options.
5. To Consolidate – If you still happen to have a 1st and 2nd mortgage on your property then refinancing makes a lot of sense to consolidate two payments into one. With the low interest rates currently, combining your mortgage total at one low rate can save you a lot of money. Typically most 2nd mortgages are a point or two higher than the 1st and that savings goes right into your pocket.
For most people their home is the biggest financial burden they will have to deal with. It makes sense to try and ease that burden when possible by looking at refinancing when rates are low to better your current situation. If it does not lower your overall payment over the long term or would be to obtain money for frivolous purposes then refinancing is not the best choice for you.
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