5 GOOD REASONS TO REFINANCE YOUR MORTGAGE

Reasons to Refinance There are times when it makes sense to refinance your mortgage. Here are 5 good reasons:
1) Lower Your Monthly Mortgage Payment
2) Getting Cash from Your Home
3) Consolidating High-Interest Credit Card Debt
4) Refinance from an Adjustable Rate Mortgage (ARM) to a Fixed-Rate
5) Refinance from a Fixed-Rate Mortgage to an ARM

Lower Your Monthly Mortgage Payment

You may be paying too much every month for your loan, and that’s never a good financial move. There are 3 basic ways to lower your monthly mortgage payment and they are; 1) refinance to a lower interest rate, 2) change the terms of your mortgage and 3) refinance to an interest-only loan

Lower Interest Rate

A lower interest rate means a lower monthly payment, if all the other loan terms remain the same. A small decline of just one half of a percentage point in interest can lower your monthly payment. For example if you refinanced a $500,000 from 6.0% to 5.5%, you would save $159 per month.

$500,000 loan at 6.0% for 30 years = $2,997 per month
$500,000 loan at 5.5% for 30 years = $2,838 per month
Savings Per Month = $159
Savings Per Year = $1,908

Change The Terms Of Your Mortgage

You can change the terms of your mortgage to lower your monthly mortgage payment. If you have a 15-year mortgage, you can lengthen the term to 30 years or even 40 years. Since the balance of your mortgage is spread out over a longer period of time, your payment is lower.

$500,000 loan at 6.0% for 40 years = $2,751 per month
$500,000 loan at 6.0% for 30 years = $2,997 per month
$500,000 loan at 6.0% for 15 years = $4,219 per month

Refinance To An Interest Only Loan

The third way to lower your payment is to refinance to an interest-only loan. With an interest-only loan, the minimum amount you are required to pay is the amount of interest for a certain period of time. You do get the choice of paying as much principal as you like. But you also get the flexibility to pay less if you need or want to divert your money elsewhere.

Traditional Loan: $500,000 loan at 6.0% for 30 years = $2,997 per month
Interest Only Loan: $500,000 loan at 6.0% for 30 years = $2,500 per month
Savings Per Month = $497

Use our mortgage calculators to see how you could lower your monthly mortgage payment. 24/7 Real Estate Loans – Refinance Calculator

Getting Cash from Your Home

The equity you have in your home can act like a savings account that you could access through a home equity loan, home equity line of credit or a cash-out refinance. This is usually done when you want to finance an important home improvement, pay for college or pay off high-interest credit card debt. Whatever your reason, this may be the right option for you.

More Info: Get Cash From Your Home

Consolidating High-Interest Credit Card Debt

Refinancing your mortgage is a great way to consolidate your credit card debt into one easy monthly payment. You can reduce the double-digit interest rates you’re paying on credit cards, department store charge cards and more, simply by utilizing the equity in your home to consolidate your debts. Credit card debt is often referred to as “bad debt”, because unlike your mortgage, the interest you pay on a credit card is not tax-deductible and you pay a much higher rate on a credit card than you would on your mortgage.

Note: be sure to consult your tax advisor or accountant.

Refinance from an Adjustable Rate Mortgage (ARM) to a Fixed-Rate

If you have an adjustable rate mortgage (ARM), it may be adjusting soon to a rate that’s higher than a fixed-rate mortgage. Now might be a good time to consider refinancing to a fixed-rate loan. It is essential to know what the interest rates are doing in the market and when does the rate on your current ARM loan change.

You must also consider the amount of time you plan on being in your home. If you’re only going to be in your home for a few more years, it may make sense not to refinance out of your ARM. If you know you are going to be in your home longer than five years, it might be a smart move to refinance to a fixed-rate mortgage.

Refinance from a Fixed-Rate Mortgage to an ARM

You need to consider how long you plan on being in your home when thinking about switching to an ARM loan. Many people move within five years so it may make sense to get a lower interest rate for a 5/1 ARM (adjustable rate mortgage) than having a higher interest rate on a 30 Year Fixed Loan.