Deciding to refinance is not just about chasing the lowest rate. True, we have seen very low rates recently, and according to Freddie Mac, the 30 Year Fixed at the end of June was the lowest since September 2017. You’d have to go to November 2016 to find an even lower rate, so we are definitely in a low rate environment. While low rates may have caught your eye, you may be wondering, “Is this a good time to refinance?”
Rates, Rates, Rates. This is probably the number one reason people think of refinancing. Rates are down so I can save money. Yes, rates are down and it’s a great opportunity, but remember that a reported rate drop won’t necessarily translate into overall savings for you. Many factors determine your rate, including your credit score and loan type. In addition, you’ll need to review your current rate, the amount of time left on your loan, and cost of refinancing (for example the appraisal, closing costs, and title work). There are calculators on the internet that can give you an estimate, but contacting a First Choice Loan Services Inc. mortgage loan originator will give you answers from a real person who will help you evaluate your options.
Refi Your 30 To A 15. When you’re considering a refi, think about the long term. If you’re refinancing to save money, how much will you save over the length of your loan? While the monthly payments for a 15-year loan will almost certainly be higher than for a 30-year loan, your savings come over time as you pay less in interest. Talk to a mortgage loan originator to see if a shorter term makes sense for you.
Different Type Of Loan. When you bought your home, the loan you took out was, I hope, the best one for you at the time. Does it still meet your needs? Perhaps you took an Adjustable Rate Mortgage (ARM) with a low introductory rate. Now the ARM is about to adjust, and the rate is going up. This could be a good time to refinance to a fixed rate loan. Or perhaps when you purchased you couldn’t put 20% down, so you opted for a lower down payment and your loan has monthly private mortgage insurance (PMI). Home values have been increasing steadily, so you may have enough equity in your home to refinance to a loan that doesn’t require PMI.
Tired House. You love your house but it needs some work. Where can you get the money? You’re living in the answer. A renovation refinance allows you to take equity from your home (see above) and use it to remodel. Before you decide what to update, check the potential value of projects when you sell your home. If you simply must have a full outdoor kitchen, enjoy it, but realize that you won’t get back what you paid for it.
New Venture. You may be thinking of starting a business, or buying an investment property. A cash out refinance could provide some or all of the funds you need. (Notice that I’m not suggesting you refinance to play the stock market!) Before you risk the equity from your home on a new business venture, make sure you have a solid business plan. While 80 percent of new small businesses survive their first year, only half make it through year 5, and about a third are still going after 10 years. There are free resources to help you succeed, such as SCORE and your state and local government small business offices. You’ll need to do the math for an investment property, too.
Consolidate Debt. Think especially carefully before you refinance to consolidate debt. A debt consolidation refi doesn’t eliminate debt. It takes one kind of debt, unsecured credit card or installment loan debt, and replaces it with secured debt. The security for the debt is your home, so if you can’t make your payments you risk losing the roof over your head.
If you are considering a refinance, talk to a First Choice mortgage loan originator. Our qualified professionals can help you evaluate your options and decide if a refi, for any reason, is the right move.