With interest rates trending downward over the last several months, refinancing is all the rage. For many homeowners, refinancing an existing mortgage to a home loan with an interest rate that’s at least a full point lower than their current rate, can carve hundreds of dollars off their monthly payment. This can easily add up to tens of thousands of dollars in saved interest paid over the life of the loan.
Although refinancing may not always be a good idea, here are five great reasons to refinance a home loan.
1. Lower Monthly Payments
In difficult times, refinancing to a mortgage with a lower interest rate can save you money each month which could help you meet with your overall expenses. Be careful to know all the closing costs going into refinancing your home and to compare rates AND closing costs, including points a lender may charge. Check McCoy FCU’s low refinancing rates today.
2. Remove Private Mortgage Insurance (PMI)
You’ve gained enough equity in your home to refinance into a home loan without private mortgage insurance. Not having to pay PMI will certainly lower your overall monthly mortgage payment by 0.5% to 1.0% - that could be a savings of $83.33 per month on a $100,000 loan assuming a 1.0% PMI fee!
3. Tap into Equity
You’re looking to tap into your home’s equity to cash-out for other important financial needs. Whether you refinance the whole loan or get a home equity line of credit, there are some financial advantages to cashing out some of your equity. But be careful, using a house like an ATM is not a recommended practice for several reasons.
Keep in mind that a refinance will cost money, generally 2-4% of the entire loan. It can take several years just to break even on a refinance. If the borrower is planning to move before then, the refinance will not save them any money.
4. Pay Off Loan Quicker
If you are looking to get out of debt sooner, there are a couple of options: 1) refinance your mortgage to a shorter term loan, or 2) pay extra per month to lower your principle balance faster, thus shortening the life of the loan.
5. Consolidate debt
Refinancing a home loan for consolidating debt may be a good move if the interest rates from your other debt far exceeds your home loan payments.
Mortgages are secured debt, backed by the borrower’s home. Credit card debt, though, is unsecured. Consequently, the interest payments on credit cards are generally a lot higher than interest rates on mortgages. This can make it seem like moving debt from a credit card issuer to a home lender is a great idea; however, transferring unsecured debt to a loan that is backed by a home means the borrower can stand to lose their house if they default on the debt.
If you are refinancing a mortgage to consolidate debt, you may want to consider McCoy FCU financial counseling to learn not to rack up debt again.
Refinancing when rates are low can help some homeowners save hundreds of dollars each month but be sure to look at the full picture before going ahead with a refinance.
When you’re ready to see how much you can save if you refinance your home loan, give us a call or stop by your local credit union branch or get started on your home equity loan application online today.
