Does it make sense to refinance your mortgage? How do you know if a re-fi loan is right for you? Here are 5 things to think about if you are ready to make a change, and one thing to watch out for.
1. Lock In Your Interest Rate
Some home financing options, including home equity loans, come with variable interest rates. A variable rate goes up and down with the market. That works fine when interest rates are low, but now that the national prime insurance rate has begun to creep higher, a variable rate mortgage or loan is starting to cost more money. If you want to lock in your interest rate while it is low, you may want to refinance your mortgage.
2. Lower Your Monthly Payment
If you got a traditional mortgage before the Recession the late 2000s, you may still be paying a relatively high interest rate. That means more of each monthly payment is going to interest, and you may be paying more per month than you need to. If your current financial situation makes paying your high monthly payment a problem, you may want to refinance your mortgage.
3. Meet Your Long-Term Financial Goals
Many homeowners have a long-term financial goal of becoming debt free. Older homeowners may have plans that include paying off their home mortgage before retirement. Others may be interested in reducing their financial obligations now, so they can save more for later. If your current mortgage doesn’t match your long-term financial goals, you may want to refinance your mortgage.
4. Streamline Payments Under One Lender
Some homeowners have a complicated web of debts to pay. They may owe monthly payments to different creditors for a traditional mortgage, student loans, medical debts, as well as a second mortgage or equity loan. That’s a lot of checks to write, and a lot of deadlines to miss. Depending on your circumstances, and the equity you have in your home, you may be able to combine all of your debts into one loan with one monthly payment. If you want to streamline all your payments under one lender, you may want to refinance your mortgage.
5. Build Equity Through Home Improvement
Many areas of Metro-Detroit have seen home values rise in recent years. That means that many homeowners’ properties are worth more now than when they bought them. For these homeowners, refinancing at a higher loan amount may give them the capital to invest in high-return home improvement projects. These can make their homes more valuable and build even more equity. If you want to improve your home to increase its value, you may want to refinance your mortgage.
Borrower Beware: Credit Problems Can Raise Your Rate
Refinancing your mortgage may sound appealing for all these reasons, and more. But it isn’t for everyone. If you have had problems paying your bills, or have a complicated credit history, refinancing may actually raise your rate. That’s why it is important to discuss your particular situation with a licensed loan officer before making the decision to refinance. Apply now to get assigned to a loan officer who can help you decide if refinancing your mortgage is right for you.