Last month, as expected, the Fed opted to raise interest rates. If you are one of the many homeowners who were able to secure great rates when they were at near historic lows in the past couple years, you may not think you may benefit from refinancing. But while interest rate reduction is one of the more obvious motives for refinancing, there are several other reasons to consider.
One reason some homeowners choose to refinance is to access any equity in their homes. Along with interest rates, home values have also risen over the past few years in many housing markets across the country, thereby increasing many owners’ equity. Even as mortgage rates inch higher, they are still typically lower than the average credit card interest rate. You may be able to use any equity in your home to pay down or pay off credit cards and other debts that carry higher rates of interest.
You may access any equity in your home with a Cash-Out Refinance. Unlike a home equity loan or a home equity line of credit, a Cash-Out Refinance results in a single loan instead of a second lien against your property.
Convert Your ARM to a Fixed-Rate Loan
If you currently have an adjustable rate mortgage (ARM), chances are you may have been fortunate to receive an excellent introductory rate. Unfortunately, that low, low rate will not last forever. Eventually it will adjust and, if rates continue to rise as expected, you may see your mortgage payment increase quite a bit. Refinancing may allow you to convert to a fixed-rate loan, locking in current interest rates and protecting you against future hikes. And, if the thought of beginning yet another 30-year term is holding you back, you may have the option to refinance to a shorter 10-, 15- or 20-year loan.
Remove Mortgage Insurance
If you are paying mortgage insurance each month for your existing loan, it’s possible that refinancing could allow you to eliminate it. In many cases, you are required to pay mortgage insurance if your loan-to-value (LTV) is greater than 80%. If the value of your property has increased enough to push your LTV below this threshold, you may be able to refinance to a new loan without mortgage insurance; for example, from an FHA loan to a Conventional loan. This could potentially translate into thousands of dollars in savings over the life of the loan.
If you are considering extensive repairs or improvements to your home, you may be able to use any equity to help pay for them. Certain renovation loans allow you to combine financing for repairs and renovations with your mortgage in a single loan. This may be especially worthwhile if you choose improvements that could increase the overall value of your home.
Should You Refinance?
Ultimately, everyone’s financial situation, goals and mortgage needs are different, so the best way to find out if refinancing may benefit you, is to speak with a professional. If it’s been a while since you’ve discussed the state of your loan or discovered the current value of your home, contact a licensed Castle & Cooke Mortgage loan officer for a free loan checkup. Your loan officer can help determine the suitability of refinancing and assess your eligibility for various available loan programs.
Castle & Cooke Mortgage, LLC® (NMLS #1251) is a leading independent mortgage lender headquartered in Draper, Utah, with locations across the United States.
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Information contained in this Blog does not constitute legal, financial, or other professional advice or services and should not be used as a substitute for professional advice. The purpose of the Blog is to provide Castle & Cooke Mortgage, LLC’s opinions and general guidance on certain matters related to mortgages. The reader accepts full responsibility for use of the information contained herein.