Refinancing is a hot topic right now. You probably know at least one person that is currently refinancing or at least entertaining the idea of refinancing. We are going to discuss a few important things to think about before you make your final decision. Refinancing can be stressful, so you want to make sure you have the confidence that it is the right decision for you! Please consider these four things before making your final decision.
1) Rates are still low, but they won’t stay that way for long. The question you have to ask yourself is, how long can I wait before rates go up? Do I have time to shop around? One of the great things about Money360 is our database of registered lenders. Once you have completed a loan request, we will match you with up to three lenders. You will be able to compare offers from each lender and choose the best loan offer that will help meet your financial goals.
2) With rates as low as they are, maybe you can afford a shorter term loan. The interest rate on your mortgage is the price you are paying for your loan. You pay for dry cleaning, groceries, and doctors and your lender is no different. Lenders expect payment for their services as well. Typically, 15-year mortgage rates are lower than 30-year mortgage rates. If you can qualify for a 15-year mortgage you will pay significantly less in interest, but your monthly payments will be higher because you are paying your principal balance down in half the time (15-years vs. 30-years). If you can afford paying more in principal each month, a shorter term loan might be your best option. You can own your home free and clear in half the time!
3) Cash-out and consolidate debt or buy another property. Several people are doing cash-out refinancing so they can consolidate consumer debt or credit card debt. This is a good option for those with consumer debt because the interest rate on your mortgage loan is generally lower than the interest rate on consumer debt. By choosing a cash-out refinance to consolidate debt you can make things easier for yourself. You will now have one payment to one lender so you won’t have to juggle several payments with high interest rates from multiple lenders. Another reason to cash-out refinance is to purchase another property. This can be an investment property where you can start collecting rental income. For sale by owner homes are a great option to invest your money and can bring a constant inflow of money from renting them to new tenants.
4) Manage your credit score. By consistently making mortgage payments on time over an extended period of time, you can slowly increase your credit score. This can help for several reasons. The homeowner can possibly take advantage of a better loan, one with a lower interest rate. This will decrease your monthly payments. You will have more money in your pocket and can potentially put some of those funds towards your principal which will lower your principal balance and save in interest payments. You could even get a loan with a shorter term (20-year loan or 15-year loan) and that will allow you to pay off your loan much quicker and decrease the amount of interest you have to pay.
There are several reasons to refinance your mortgage loan. Just make sure you know what you are doing and how it will help you meet your financial goals. Don’t wait too long because rates could go up soon!
If you have any other reasons or tips for our readers, please leave comment below.