Refinancing your mortgage seems to be one of those financial things that gets easily delayed before the decision is made to actually do it. Not that major financial decisions shouldn’t be given a lot of thought, but there are some circumstances when refinancing your mortgage is almost a necessity and the only thought should be how do you get the best deal.
Here are five reasons to refinance your mortgage sooner rather than later:
5. Shortening the Term of Your Mortgage
Going to a shorter term (the number of years remaining on your loan), say from a 30-year term to a 15-year term should be seriously considered in situations where your current interest rate on your mortgage is more than 2 points higher than the current market interest rates. This is especially true when you have more than 20 years left on your mortgage. In the early years of a 30-year mortgage most of your payment is going towards interest rather than towards the principal balance of your mortgage. With a 15-year mortgage loan more of your payment goes towards the principal balance of your mortgage thereby increasing the equity you have in your home. You will save a significant amount of money over the life of your mortgage with a shorter-term loan.
Another factor to consider when thinking about the term of your mortgage loan is retirement or some other predictable lifestyle change that might impact your income or ability to pay your mortgage. If you’re building a retirement plan or have retirement in sight, consider refinancing your mortgage so the new term coincides with your possible change in income.
4. Change in Property Ownership
Anytime you jointly own real estate that is encumbered by a mortgage and there is a change in ownership, you should refinance as soon as practical, after the ownership change. Joint ownership includes ownership with a spouse, business partner, relative or any situation where there is more than one owner. The change in ownership can be the result of a divorce, death of an owner, buy out an owner or any type event that dissolves a joint relationship. In most cases involving the dissolution of a relationship, the advice of an attorney should be sought. In all cases, refinancing the mortgage should be done as soon as practical. Most mortgagors will not release a party to the mortgage in the absence of a refinance without triggering a default of the mortgage.
3. Cash Out Refinance
You can take cash out of the equity of your home with a cash-out refinance. A few reasons you would want to do a cash-out refinance include to make repairs to your home; consolidate debt, or any emergency requiring cash. Why would you do a cash-out refinance to consolidate debt? Generally, the interest rate you will pay on the refinanced mortgage will be less than the interest rate on any other debt you will have. For instance, if you were to consolidate debt, say credit cards, car loans, and furniture loans with a cash-out refinance, the interest rate on the cashout mortgage will most likely be substantially lower than the interest rate on any of those individual debts. With the lower interest rate, you will save you significant amounts of money in interest payments.
2. Eliminating Mortgage Insurance
Not to be confused with homeowners’ insurance, mortgage insurance is paid on FHA loans to guarantee repayment of the loan to the mortgagor. Many conventional loans also have mortgage insurance. If the amount of your mortgage loan exceeded 80% of the value of the house when you bought it, you probably had/have mortgage insurance. In many cases you can refinance your mortgage an element the mortgage insurance, if you refinance from an FHA loan to a conventional loan. The savings could be hundreds of dollars per month.
As you are probably aware, homeowners’ insurance protects your home in the event of a catastrophic event
1. Interest Rate Reduction
Reducing your interest rate and thereby reducing your monthly payment is the number one reason most people refinance their mortgage. If your current interest rate is 2 points about the current market interest rates you should run to refinance. There is never a good reason to spend more money than you need to, particularly in interest. There is a usually a cost to refinance. The costs are normally included in the loan. You will recoup the costs of the refinance within the first 18-24 months of the new loan. The period for recouping the costs will be impacted by many things, including the spread between your old interest rate, new interest rate, the term of your new loan, and the overall cost to refinance.
Valley National Mortgage Company LLC is licensed in Texas as a mortgage company by the Texas Department of Savings and Mortgage Lending and the Nationwide Mortgage Licensing System. The NMLS ID is 1084075. Marcus Nelson is the designated mortgage broker. NMLS ID 1088213. To contact Valley National Mortgage Company LLC visit our website at www.valleynationalmortgage.com or send an email to firstname.lastname@example.org