Looking to refinance? There are several scenarios in which this might benefit your financial situation.
Everyone’s situation is different, but in many cases refinancing your mortgage loan could have some major benefits. Take a look at the different scenarios in which a refinance might be the right move.
Save Money with a Lower Interest Rate
If current interest rates are lower than the interest rate on your mortgage, you should consider taking advantage of a refinance loan. A difference in just one percent would make your monthly payment lower — let alone save you thousands of dollars over time.
Complete Home Improvements, Renovations, or Repairs
Thinking about renovating your home, but don’t want to pay out-of-pocket costs? You can tap into your home’s equity to cover it with a cash-out refinance. Or, if you don’t have enough equity to cover the costs, you can do a renovation refinance. This will wrap the renovation loan and your mortgage loan into one monthly payment, making it a piece of cake to keep track of.
Either of these options can cover the costs of home improvements like:
- Remodeling your home office space
- Adding a powder room or full bathroom
- Repairing tile floors
- Updating the fireplace
- Putting in a pool
- Adding built-in storage to your mudroom
- Remodel your backyard patio
- And more!
Pay Off your Loan Faster
If you have a 30-year mortgage, you may want to switch to a shorter loan term at some point, such as a 15-year mortgage. This isn’t ideal for everyone, but if you can afford a potentially higher monthly payment, there are benefits to a shorter term, such as:
- Less paid in interest over the life of the loan
- Build equity faster
- Own your home free-and-clear sooner
Pay for Large Expenses
If you plan to stay in your home but you have other debts — especially high-interest ones such as credit cards or personal loans — it can be beneficial to use a cash-out refinance to pay down those debts or eliminate them entirely. While your monthly mortgage payment may increase, removing your credit card debt (which would accumulate higher interest over time) could save you money, in the long run.
You could also use your home equity to pay off student loans or finance upcoming education costs. Using a cash-out refinance, you could pay off student debt or use the money to begin or finish your college education.
In any case, it’s important to talk with an experienced loan professional about your unique situation — to make sure that the costs associated with a refinance are less than the money you’ll ultimately save. As with any financial decision, it’s important to consider at the long-term outcome of your choice.
Make Changes to Your Loan
If you are in a better financial situation than when you first took out your original mortgage, a refinance could help you save some money in a variety of ways. First of all, you could qualify for a lower interest rate now, which could save you money on your monthly payments and over time.
You could also refinance to a new mortgage loan program and eliminate private mortgage insurance (PMI). If you have a government loan that requires mortgage insurance (like an FHA loan), you may qualify for a loan type that does not require mortgage insurance (like a conventional loan) if you have enough equity in your home. No PMI means a lower monthly payment.
Depending on your situation and current interest rates, you could also switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage. This could save you a significant amount of money over the course of your loan.
To find out if a refinance is the right move for you, visit our refinance calculator and contact a home loan expert in your area today.
