Americans today are more motivated than ever to pursue a mortgage refinance. Doing so can lead to lower monthly payments through reducing the interest rate, cutting down the loan length, removing cash from the property’s value, and even adjusting the type of loan against the property. Homeowners often overlook the value their property provides as a financial investment asset for their future. And though it’s not something that occurs to homeowners, there’s never a bad time to consider refinancing. The four reasons listed above are beneficial to a homeowner at one point in their lives or another.
Many borrowers think that they’re locked into the interest rate they received when taking out their loan, but interest rates can fluctuate frequently and refinancing can make a big difference. Saving $100 a month on your payment may not seem like a lot, but across 30 years, that’s a $36,000 savings!
Just because most buyers take out a 30 year loan doesn’t mean they’ll stick with it for the full 30 years. The common loan term lengths are 30 and 15 years, but borrowers have the potential to customize their amortizations. A 30 year term can be adjusted to 25 and a 20 year term can be altered to a 15 or even a 10 year term. Keep in mind a monthly payment holds the possibility to increase slightly as amortizations are lowered, though it’s not always the case. For example, if your home was purchased in 2009 with a 6% interest rate, by lowering the term by three years, even though the monthly payment can go up a nominal amount, say $23 or $400 per year, the savings across three years of a shorter term is upwards of $43,000. Well worth changing the term.
When facing personal debt with higher interest rates— credit cards, student loans, etc.— there could be a smart move in taking cash out of the mortgage, to pay down those debts, utilizing the equity that has been built up in said mortgage. Paying off high-interest debt can save a lot of money in the long run and even in the short run by reducing monthly bill payments, keeping more cash in your pocket.
You may also find that your loan needs have changed. If a home was purchased with an FHA mortgage, there may be a way to remove the private mortgage insurance (PMI) if it’s no longer needed. As of now, the only way to do so is to refinance out of the FHA loan into a conventional mortgage product. With the way some homes in the U.S. have skyrocketing values, taking advantage of a refi into a lower rated loan sans PMI, homeowners can save a lot of money. And don’t think just because you’re a new homeowner that you can’t take advantage of this option.
Ultimately, speaking with a reliable mortgage professional will let you know what your choices are to reduce payments, term length, or to change the type of loan. Be sure to do your research to find the right mortgage professional, that make you feel comfortable, and that you can trust. And when you do, communication is key: be honest with what you’re looking for and what your goals are so they can best assist you with the most suitable product for your needs.