You can’t turn on the financial news without being bombarded with reasons to refinance your mortgage. Some banks and lenders even mail random advertisements! And if you have an existing home loan, your current lender may telephone and invite you to complete a refi application. But even if you’re tired of refinance talk, there are sound reasons to refinance your mortgage. Can’t decide whether now is the right time? Here are seven logical reasons to consider a refi.
1. Lower Mortgage Rate
Mortgage rates have never been this low. And while some financial experts predict that rates will remain low throughout 2013, they will eventually increase. This is one of the biggest reasons to refinance your mortgage. If you purchased your house years ago and you’re paying a higher rate, a refinance makes financial sense.
2. Reduce Monthly Payment
Not only does a mortgage refinance bring down your interest rate, but it can also reduce your home loan payment. Your payment is directly connected to your mortgage rate. The lower your rate, the cheaper your house payment. In fact, reducing your mortgage rate by 2 percentage points or more can lower your home payment by as much as $200.
3. Get Rid of an Adjustable Rate Mortgage
If your lender previously talked you into an adjustable rate mortgage, a refinance is one way to get from under this risky home loan. Adjustable rate mortgages feature a low, fixed rate for the first few years, and then annual rate adjustments after the initial rate period. Rate fluctuations are dangerous because a spike in mortgage rates can trigger a higher mortgage payment. But you can refinance to a fixed, permanent rate and avoid payment surprises.
4. Take Someone’s Name off a Mortgage
Buying a house with someone can help you qualify for a home loan, but if you divorce or part ways with a co-owner, getting this person’s name off the mortgage isn’t easy. A refinance is your only option, in which you apply for a new mortgage loan on your own. If approved, the other person’s name is taken off the home loan and you become the sole owner of the property.
5. Pay off Credit Cards
Are you burdened with credit card debt and need cash to pay off your creditors? If you have plenty of equity, refinancing and borrowing against your equity can provided needed cash. Called a cash-out refinance, your lender rolls the borrowed amount into your new mortgage loan. You can use these funds to pay off debt.
6. Home Improvements
A cash-out refinancing isn’t only for debt elimination. Is your house in need of a makeover? If you plan on living in your property for years to come, pull out some of your equity and make a few upgrades. Get a new kitchen and bathroom, or finally complete your home addition. Improvements are perfect for increasing your home’s value and raising your equity.
7. Buy Another Property
With the supply of home foreclosures on the market, refinancing and cashing out your equity can jump start your real estate investing career. Let’s say you come across an amazing real estate deal. You can always apply for a separate mortgage loan. Another option: cash out your equity and pay for the property with cash.
Granted, refinancing isn’t the best move for everyone, and there’s plenty to consider before you make a decision - such as closing costs and your credit score. But if you’re able and willing, a refinance can improve your financial outlook? Can you think of another good reason to refinance your mortgage?