I conduct an Annual Mortgage Review for my clients at the beginning of the New Year. Now that the football season is over, and the New England Patriots are once again Super Bowl champions, it’s time to get back to business, and get your financial affairs in order!
Some of you may be thinking: rates are higher now, so why would I refinance my home? This is a valid question, and, for some of you, I will recommend that you don’t touch your current loan program. Please keep in mind: we are still at a historically low point with mortgage rates. Talk to your parents and grandparents about the good old days, and they will tell you about the double-digit interest rates they had on their mortgages. I assure you, we are no where close to those rates, and this still may be the best time for you to refinance.
Let’s discuss some of the major reasons why you may want to refinance now:
Eliminate PMI – PMI stands for private mortgage insurance. If you put down less than 20% when you bought your home, or if you are currently in an FHA mortgage, then you are probably paying some type of monthly mortgage insurance. As most of you know, the local real estate market is seeing a boom and your house could be worth a lot more than what you purchased it for. By refinancing now, you may be able to lower your interest rate and drop the PMI all together. This potentially could lower your monthly payment by hundreds of dollars a month.
ARM vs. Fixed Rate – If you are currently in an Adjustable Rate Mortgage (ARM), then it may be time for you to refinance into a Fixed Rate mortgage. When an ARM resets, many homeowners will see their monthly payment increase. With short term interest rates on the rise, this is becoming a reality. The Fed is predicted to continue raising rates, which will impact any homeowner who has an ARM. The caps on these mortgages are pretty high. If you refinance into a Fixed Rate loan, you may end up lowering your monthly payment. Even if refinancing to a fixed rate loan keeps your monthly payment the same or even increases it a few dollars, it could potentially save you thousands of dollars in interest payments in the future. This is a short-term sacrifice, but it will surely improve your financial situation in the long-term.
Debt Consolidation – As mentioned earlier, the Fed has already started increasing the Fed Funds Rate, which is the interest rate at which banks lend to other banks on a short term basis. The increased rate means that any variable rate product will soon see a spike in rates as well. In simpler terms, all of your credit card rates or Home Equity Lines will also be seeing higher rates. With the recent increase in home values, you may now have a great deal of new equity in your home. By refinancing, you could possibly take cash out to pay off all of your credit cards or consolidate your current equity line of credit. This could lower your monthly overhead by hundreds or even thousands of dollars! Now, if you use these savings and apply them to your new mortgage, you will cut several years off the new term and pay your home off even faster. Your mortgage interest is also tax deductible, while credit card interest is not. If you want to substantially reduce your monthly obligations and you want more money back come tax season (and who doesn’t?), this may be the right move for you to make.
Home Renovation – Many of you may have been thinking about making major home renovations or home repairs. With short term interest rates on the rise, a Home Equity Line of Credit (HELOC) may not be your best option any more. Remember, a HELOC is essentially a variable rate loan and you may be subject to higher rates in the near future. By completing a cash-out refinance, you can borrow from the equity in your home to create that dream kitchen and bathroom, or maybe add that all-season sun porch. With the completion of these new home renovations, your home will be worth even more in the long run.
Pay Off Your Home Faster – Many of you may have experienced significant changes in your lifestyle. Whether it be a new job with more income, tying the knot with your loved one, or finding a pot of gold over the rainbow, your financial situation may be different than when you originally bought your home. With rates still at very low levels, you may want to pay off your home faster. This is a great time to look into refinancing into a shorter term mortgage. Ultimately this usually saves you tens of thousands of dollars of interest over the life of the loan.
Real Estate Investment – Historically, real estate has always been a pretty sound investment. If you have been thinking about buying that vacation home down the Cape or that multi-family investment property in East Boston, you will needs funds for your down payment. Depending on the value of your home, you may be able to borrow against your equity and take out the cash needed for these down payments on the properties you are looking at. If you are trying to build your Real Estate empire, then a cash-out refinance on your current home may be just what you need.
Every person’s situation is unique, and there could be other reasons that refinancing makes sense for you. I would be more than happy to discuss your current loan program and help you decide whether or not refinancing now is the right move for you. For a free, no-obligation consultation, please feel free to call me direct at 617-866-9900 or email me at email@example.com.