6 Reasons to Refinance
You may be tied to a house payment for a while, but you don’t have to stick with the same mortgage forever. Your mortgage can change as your needs do. Here are some reasons you might want to consider refinancing your mortgage.
1. You could use a little more cash in your account each month.
Who couldn’t? You may be able to obtain a lower interest rate by refinancing your mortgage. Reducing your interest rate by even half a percent could significantly lower your mortgage payment. However, because the fees associated with refinancing can reach into the thousands, it’s important to crunch the numbers and make sure you’ll be in your home long enough to recoup the costs of refinancing. For instance, if you only reduce your payment by $50, but your closing costs are $1,500, it will take you almost three years to break even. Use the GetSmart refinance calculator to run your numbers.
2. You could use a lot of cash right now.
Let’s say there’s a significant household expense looming – a new roof, say, or college tuition. Or maybe you’d like to purchase a second home, or remodel your kitchen. Cash-out refinancing can be a smart solution. This option assumes you have equity in your home – that there is a difference between the value of your home and your outstanding loan amount.
3. You’d like to get rid of your credit card debt.
Another great use for cash-out refinancing is debt consolidation. Use the funds from a cash-out refinance to pay off high interest credit cards, and essentially you have transferred that debt into your mortgage. Not only will your total monthly debt payments likely be lower, but the interest may be tax deductible. Of course, check with your tax advisor to be sure. And then cut up those credit cards.
4. Your mortgage payments are rising.
And it’s keeping you up at night. If you have an adjustable-rate mortgage, chances are you’ve seen your payments increasing recently, as interest rates have risen. If this is the case, you may want to refinance into a fixed-rate mortgage to stabilize your monthly payment -- and get some sleep.
5. Your credit is better now.
Congratulations! You’ve kept to the straight and narrow and repaired those imperfections on your credit report. Now that your credit score is higher, you may qualify for a lower interest rate, and therefore, a significantly lower monthly payment.
6. You want to own your home faster.
You got a raise, or paid off your car. What to do with all that extra cash? If you are planning to own your home into retirement, consider refinancing your mortgage from 30 years down to 20 or even 15. Your payments will rise, but you can look forward to having no house payment at all a lot sooner.
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