September 29, 2020
4 MINUTE READ
At Reali Loans we specialize in helping our clients refinance their home loans. Deciding to refinance your mortgage is a significant financial decision. Early in the process you just want to figure out if refinancing is a good choice.
You see all the teaser rates advertised on the internet and feel like you’re missing out. Maybe your neighbor just refinanced her mortgage and said she decreased her mortgage payment.
You ask yourself, “Should I refinance my mortgage?”
1. You want to stop paying private mortgage insurance (PMI).
This stuff is annoying and expensive! It can sometimes cost you several hundred dollars per month.
Paying PMI over many years of a mortgage can cost you thousands of dollars!
How do you stop paying PMI?
As long as you have twenty percent or more in home equity you can refinance your mortgage and get rid of private mortgage insurance. Refinancing is the quickest and easiest way to get rid of PMI.
2. You have an adjustable-rate mortgage and you’re worried about interest rates going up.
Home loan rates on a 30-year mortgage bottomed out in late 2012 at 3.35% and have remained relatively low. If you’re currently in an adjustable-rate mortgage now might be a good time to think about refinancing and locking in a low rate.
Consider that adjustable-rate mortgages have interest rate caps that can be as high as 5%. This means that if you’re current interest rate is 6% your rate could go up as high as 11% or as low as 1%.
Interest rate moves this large might not be likely but it illustrates the risk associated with an adjustable rate.
Many homeowners who have adjustable-rate mortgages refinance before their rate adjusts.
One caveat is how long you plan to live in the home. If you are planning on moving before your rate adjusts then there is probably no need to refinance.
3. You want to lower your mortgage payment.
Since rates are so low it’s likely that you could lower your mortgage payment if you refinance. The main thing you need to do is get a rate quote and see what kind of rate you qualify for.
Do yourself a favor and ignore teaser rates you see on the internet. It’s rare to get the same rate you see advertised.
What’s more important is finding out the rates you qualify for based on your situation. It’s also important to pick the best loan product for your situation and goals. Rates you see advertised are usually for 15-year mortgages. But 15-year mortgages aren’t the best product for everyone.
A good rule of thumb for refinancing is to consider an initial loan term that is equal to the number of years left on your current mortgage.
4. You want some cash money!
Home prices in many areas have recovered significantly and many homeowners have regained equity.
If you are one of the lucky homeowners who has more than twenty percent equity in your home you might be sitting on some cash. You can do a cash-out refinance to get the money you need for home improvements, college tuition and large purchases.
Since rates are low this could be a better way to finance large purchases versus traditional financing. Plus you would avoid adding extra monthly payments because everything is rolled into one loan payment.
5. You want to consolidate some high-interest debt.
The average U.S. household carries $15,191 in credit card debt and $33,607 in student loan debt.
That’s a lot of debt! Take into consideration that the average credit card interest rate is 15.01% nationwide.
Some homeowners also have home equity loans or home equity lines of credit. The latter of which usually carries a variable interest rate.
One way to ease some stress and potentially save some money is to consolidate all these payments into one low payment. If you have enough equity in your home you could refinance and get the cash you need to pay off the high-interest debt for good.
Just make certain that you don’t go back and rack up more credit card debt once you pay it off.
These are all good reasons to consider refinancing your mortgage. Make sure to run your numbers to make the best decision. If you think it’s a good time to refinance your home loan you can get a personal rate quote using our simple online process in less than 30 seconds.
Debt figures (source)
Credit card rates (source)
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