Deciding to refinance your home can seem like a complex undertaking. You may not be sure why a refinance might be right for your situation, unless you know all the facts surrounding the process. There are many reasons why refinancing may be the best option for you.
Keep in mind that refinancing is usually much easier than purchasing a new home. That was definitely a huge step in your life, especially if you were a first-time homebuyer. Let’s look into the top 10 signs you should refinance your home.
Reason #10: Eliminate PMI
PMI, or private mortgage insurance, is required when you obtain a mortgage loan through the Federal Housing Administration (FHA). This allowed you to put less down when you bought the house. If you decide to refinance, you can potentially get rid of your PMI payments, which can save you quite a bit of money every month.
Reason #9: Your Credit Score Increased
If your credit score was average to fair when you bought the house, but it has improved recently, congratulations! It’s probably time to see if you can refinance with a lower interest rate. Have you paid off a bunch of credit cards or ended a hefty auto loan? In any case, your financial responsibility has paid off. With a better credit score, you’ll be in a greater position to lower your monthly payments with a rate that reflects your current situation.
Reason #8: Adjust Loan Terms
If you think you want to change your loan terms to get a lower monthly payment, such as going from a 10- or 15-year mortgage to a 30-year, that’s possible with refinancing. Or you could go in the opposite direction and pay off your loan sooner by dropping a 30-year to a 10- or 15-year loan. It’s up to you as to what your end goals are with your mortgage, but adjusting the loan terms could do the trick.
Reason #7: Debt Consolidation Is Your Goal
If you have high-interest debt obliterating your budget each month, you may want to do a cash-out refinance to have the money to pay off those debts. You can do this with a home equity loan.
Reason #6: You Signed on for an Adjustable Rate Loan
An adjustable rate loan can be a tricky gamble because more than likely, it’s going to go up each year. You may have started out with a lower rate at the beginning, but since then, it’s gone through the roof. Refinancing and switching to a fixed mortgage rate could save you some worry and money in the long run, especially if you know you are going to stay in that house for years.
Reason #5: A Cash-Out Refinance Would Help You
Emergency expenses come up. Going back to doing a cash-out refinance with a home equity loan could help if you need money right away.
Reason #4: Fixed Income From Retirement
When you are nearing retirement age, you may consider refinancing to get a lower interest rate, so your payments will be lower. Switching from a regular salary to a fixed income can be a stressful change if you don’t make steps to lower your mortgage expenses right before you retire.
Reason #3: For Home Improvements
A cash-out refinance is also helpful for home improvements or repairs that you need to make on your house. Many people do this to make the house they currently live in more livable for the foreseeable future, instead of upgrading and spending a ton of money on a brand-new home. You may be able to fix the roof, add on an addition, or make upgrades throughout the house, such as adding on an extra bathroom that will make your place seem new again.
Reason #2: Need a Lower Payment
If you are struggling to pay your mortgage each month, you could potentially have a lower payment with a refinance. For example, you can refinance for a longer-loan term on the remainder of what you owe on the house. Then, you’ll have a smaller principle amount to make payments on.
Reason #1: Your Interest Rate Is Sky High
Interest rates have improved in the past few years, so the chance that it was higher when you bought the house is likely. You can refinance for a lower interest rate. You can even do this if you have an FHA loan with an FHA streamline refinance. This is probably the biggest reason most people decide to look into refinancing: to get that lower interest rate.
Our talented loan originators at Southwest Funding are happy and ready to assist you with your refinancing solutions. Giving home refinance tips is just one of our specialties. Let our team help you start the process if you feel this could be the right step for you financially.
Southwest Funding, LP | Southwest Funding, Limited Partnership (NMLS #32139) is an equal housing lender. This is not a commitment to lend or extend credit. Programs, rates, terms and conditions are subject to change without notice. Terms and conditions apply. All rights reserved. Contact us for details. Consult your accountant about tax deductions.