Rumor has it that borrowing money is about to get more expensive, so if you have been talking about refinancing your home, now might be the time to put that money where your mouth is.
There are lots of reasons to consider refinancing, but there are a few that should really drive your decision. Ruoff has outlined the big ones below to help ease the anxiety that accompanies this type of financial move. Determinations like these are not the easiest to make, so let’s examine situations where refinancing becomes more of an obvious choice.
And they are. Since the beginning of the year, mortgage rates have increased by almost 1.6 percentage points. Current trends suggest that these numbers will continue to increase, so if you have been tossing around the idea of refinancing, you might want to get while the getting is good. After hitting all-time lows in 2021 in response to the ongoing global pandemic, mortgage rates are again on the rise, so the longer you wait, the higher those rates could soar.
If you are finding yourself over-burdened by payments, refinancing your mortgage might be what it takes to help relieve the financial pressure. By reconfiguring the remaining debt attached to a property, owners typically save anywhere from fifty to a couple hundred dollars per month depending on the accumulated equity and new interest rate. This reduction can mean more financial freedom for those working within a fixed income or for folks who’ve experienced a recent shift in their resources.
Another reason to pull the trigger on a refinance is to decrease the amount paid out in interest over the life of the loan. At the end of the day, the sale price of a house is nowhere near the actual cost for buyers reliant upon a mortgage, as most borrowers end up paying over 50% of their original loan amount in added interest by the time the loan has been paid back in full. Keep in mind, though, an amortization schedule frontloads the interest, so if you have reached the point in your current mortgage where you are paying more interest than principal, it might not make sense to refinance. Plug your numbers into a refinance calculator to see if the change is truly worth it.
For borrowers who utilized an FHA loan, mortgage insurance payments continue throughout the life of the loan. There are certain conditions under which a lender will remove this additional charge, but these exceptions are infrequent and dependent upon the time passed, accumulated equity, and date of loan origination. By refinancing with a different loan type, however, borrowers are able to get out from under the added weight of PMI.
If you find yourself in a position of overwhelming high-interest debt, refinancing your mortgage with a cash-out option might be a reasonable way to consolidate what you owe into one payment that is more manageable. Credit card debt and personal loans add up over time, and if you have built enough equity in your home, paying that debt off with a cash-out at the front end of a refinanced mortgage might be what you need to get on the right track again. In this scenario, the new mortgage is written for anywhere up to 125% of the home’s value. The excess above the loan amount is then provided to the borrower in cash at the closing. This allows homeowners to eliminate other more expensive debt and focus on a single payment each month. Leveraging your home to cover outside debt can be a risky move, though, so be sure to do your research.
In order for a refinance to make sense, you must plan to remain in the home until (at the very least) the point at which the money you have saved is more than the closing costs you paid to refinance. Arguably, the money saved should greatly outweigh the cost to close, but that will all depend on the length in which you stay at the property. For owners who know they’ve found their forever home, refinancing is likely a good option, but for those who are less certain, make sure you can at least commit to sticking it out until the point of breaking even.
If you are ready to take the next step to see what refinancing can do for you, Ruoff is here to lend a hand. We can walk you through the various loan options or get you started with an online application. The process is simpler than you might think, and if your reasons for refinancing match any of the scenarios listed above, the financial benefits that follow make the decision an even easier one.