NEWS FLASH: If your mortgage is older than four years, it’s time to consider the advantages of refinancing your home. Here are three telltale signs that refinancing is right for you:
1. Interest Rates Are On Your Side
In general people refinance because current interest rates are lower now than back when the loan was created. Let’s say you had a $500,000 mortgage in 2011 at a 4.85% interest rate, refinancing at 4.08% will get you back over $200 a month. Refinancing could potentially save you over $20,000 over the life of the loan.
Confused? Here’s a sample scenario: You live in California and have a conforming 30 year fixed loan in the amount of $417,000, with a loan-to-value (LTV) of 80% and a FICO credit score of 740 or higher. If you take the average mortgage rates from the 12 Mondays ending 5/31/2016, which were 3.500 (APR 3.537%) for Sindeo and 3.806% (APR 3.847%) for the Market Average, you could LITERALLY save $25,870 by choosing the right provider. And if you have an adjustable-rate mortgage nearing the end of its initial term, a refinance could be a winner move. Transitioning to a fixed-rate mortgage could lock in today’s low rates and give you a predictable, consistent payment so you don’t have to worry about a future rate-hike.
2. You Want Shorter Loan Terms
If your career is on the rise or you’re a fan of increasing your home equity, refinancing into a shorter term could help you increase some funds. Refinancing an existing 30-year mortgage to a 15-year term could save you as much as a full point on your interest rate so you can advance investment opportunities, increase your savings, and build wealth while paying off your loan early.
3. It’s Time for Some Debt Consolidation
Refinancing could help you whip out cash and consolidate debt. Tapping into your existing home equity could be savvier than taking on a home equity loan. Since rates tend to be lower on a cash-out refinance, if you owe $300,000 on a $500,000 house, you could refinance the mortgage for $360,000, get a better rate on the $300,000 you still owe, and get a check for $60,000 to spend as you wish. If a dream kitchen or new vacation home is calling your name, and you have significant equity in your home (as well as some disposable income), a refinance can make that dream a reality. Doing a cash-out refinance can give you the double benefit of lowering the rate on your current mortgage, and providing you the down payment cash to put toward a second mortgage for a vacation home or investment property.