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Everyone’s reasons to refinance are different. Here are the most common reasons.
Lower your mortgage rate and payment. Is your current interest rate higher than what is currently available in the market? If so, it is probably a good idea to see how much you could save by refinancing now. This is one of the most common reasons that homeowners refinance their mortgage. Ask your mortgage advisor about the low-cost and no-cost options* available that may save you money with little to no investment.
Reduce your term. Shorter terms mean lower rates which mean more savings over the life of your loan. Take advantage of current low rates to reduce the term of your loan.
Convert your adjustable rate into a fixed rate. If you are a first time buyer or if you need lower payments initially, adjustable rate mortgage (ARM) loans are a great way to ease into your payments. Eventually, if you decide you will stay in the home longer, you may want to consider refinancing that into a long term fixed rate loan. Doing so will give you peace of mind, knowing that your payment and rate will not change for a set period of time.
Convert your interest-only loan into a fully-amortized loan. Interest-only mortgage loans, like ARMs, are a great way to minimize payments at the beginning. Because you are not paying any principal, your loan balance does not decrease however. If you plan to keep your home long term, you probably want to start paying off your loan. Often, you can refinance your interest-only mortgage loan to a 30 year fixed mortgage loan while keeping your payments about the same.
Remove mortgage insurance. Chances are you are currently paying PMI (private mortgage insurance) if you purchased a home with less than 20% down. Refinancing will help you eliminate the extra expense if you’ve paid down your balance and/or have seen an increase in your home’s value to a point where you have at least 20% equity in, or a loan-to-value (LTV) of 80% or less.
Convert your 30 year loan to a shorter-term loan. Have your plans changed and the home that you thought you were going to have for a while has turned a permanent situation into a temporary one? You may consider converting your 30 year fixed to either an ARM or a 5/1, 7/1 or 10/1 loan program, if you are planning to sell sooner than you thought and no longer need a long-term rate. These options often have both lower rates and lower payments.
Take cash out to consolidate your debt. Many homeowners have made their money work for them by leveraging their home equity. Use the cash to pay off higher interest, non-tax-deductible credit cards, student loans, or medical bills. You can enjoy the benefit of having only one payment each month, and in most cases your overall monthly outflow decreases by consolidating your debts.
Take cash out for home improvements. Many homeowners have found it a sound investment to reinvest their hard earned equity back in the home, in form of home improvements or repairs. Whether you would like to update your kitchen or fix your leaky roof, you can tap into your equity and have a tax deductible** way to fund your projects.
Take cash out to purchase investment property. If you’ve been thinking about buying an investment property or vacation home, now may be a great time to take action. With interest rates at the lowest they’ve been in years, tap into the equity and use the cash for your down payment, home improvements, or for other financial goals.
* No closing costs options are NOT available in Washington.
**Consult your tax advisor regarding tax deductible status.