Mortgage rates are near record lows, and refinance is all the rage these days. Low interest rates are the most common reason to consider a mortgage refinance, but there are many ways a refi could benefit you.
Rate and term refinance loans
Paying a lower interest rate can save you big over the life of your loan, and you can see those savings pretty quickly in the size of your monthly payments. A refi might make sense in the following situations:
- Current interest rates are half a point or more below your original rate
- You’ve had the same loan for more than about 10 years
- Your credit score has improved dramatically
- Your loan-to-value (LTV) ratio is below 80%
One of the biggest benefits of a rate and term refinance is the opportunity to stop paying mortgage insurance. If you are in an FHA loan or put down less than 20% when you closed your original loan, there’s a good chance you are paying these pesky fees.
You may also be able to shorten your term from a 30-year conventional loan to a 20- or even 15-year option. The shorter your term, the less you’ll pay in interest over time and the sooner you may be able to own your home outright.
Home renovation loans
Turning your current home into your best home is another great reason to refi, and specialized loan types are available to help you accomplish just that.
Whether you want to install that backyard pool for the kids, renovate a room into a work-from-home office, update that kitchen or bathroom, or install energy-efficient HVAC, a renovation refinance can get you there.
Beyond lowering your monthly payments and improving your home, you can change your financial outlook with a refi at the right time. Your dreams of higher education, travel, or a big purchase may be within reach, and the financing costs could be lower than you think.
Debt consolidation loans
A refinance can also be a good decision for your overall financial picture. If you have a high interest credit card or student loans, you might be able to pay them off with the refi proceeds. That way, you can reduce the number of payments you make each month. At the same time, you’ll be paying less for the cost of borrowing money.
Reasons not to refinance
The benefits of a refinance can be huge, but it’s not right for everyone. If you recently bought your home, a refi might not make up for the closing costs that come with a refinance.
You may also want to rethink a refinance if you haven’t met other financial goals such as retirement account contributions or college fund savings.
Finally, it can be unwise to use your equity to make a large purchase you couldn’t otherwise afford. If you do, you could end up paying a lot more in the long run than the purchase is worth.
Work with a licensed Loan Officer
A Castle & Cooke Mortgage Loan Officer can help you determine your break-even point by comparing closing costs with potential monthly savings. A good Loan Officer will also help you understand your complete financial picture and help you find home financing that brings benefits now and into the future.