Mortgage Rates on the Rise: Should you refi?
We've already witnessed the lowest mortgage rates in modern history dating back to 1971. Chances are mortgage rates are headed higher. In fact, we've already seen them tick up in 2021:
Should you consider refinancing your current loan for the second or even third time?
Whether it is to consolidate debt, take advantage of low-interest rates, or take some money out against the equity of your home, there are many reasons why a homeowner may be interested in another refinance. These may include, but are not limited to, the following five categories:
A Lower Interest Rate
The most popular reason for refinancing your current mortgage is to take advantage of interest rates that are lower than when you took out your last loan. If you have been on the fence about refinancing, now may be a good time to reconsider. It is vital that when looking into refinancing at a lower interest rate, you take into account the closing costs and fees that will be associated with a refinance to make sure it is worth the switch.
Consolidating Debt
For many, COVID has led to higher credit cards and other debt. A homeowner has the advantage of being able to use their residence to pay down this kind of debt at a lower interest rate through a cash-out refinance. Keep in mind that you will need to have enough equity in your home to make the numbers work with your lender. Also, be sure to calculate the amount of interest you will pay throughout the life of your mortgage, and determine if this repayment method will be cost-effective given your finances. Swapping unsecured credit card debt with a loan backed by your home can have serious ramifications if you run into future financial trouble.
Renovating Your Current Residence
The pandemic has redefined the concept of professional workspaces. If you have the flexibility to continue working from home for the long term, a renovation may be on the horizon. Perhaps you want to add on a snazzy home office or repurpose some other space for maximum efficiency. A cash-out refinance may be the solution for you. Using your home as an ATM has its limits and dangers, so make sure you have a complete understanding of the nuances of a cash-out refi before taking any action.
Eliminating Private Mortgage Insurance
If your home was originally purchased when you had a lower credit score and you didn't meet the down payment requirements for a traditional loan, you likely were required to get private mortgage insurance (PMI). PMI results in a higher monthly payment to protect the bank against riskier loans. If that was some time ago and your financial situation has improved, you may be able to refinance and kick your monthly PMI payment to the curb.
Changing the Mortgage Term
If your financial position is strengthened, you may find yourself wanting to refinance your mortgage so you can shorten the term of your loan, pay less interest over time and pay off your house earlier. Conversely, you may want to take this opportunity to lower your monthly payment by extending the term of your mortgage through a refinance. Keep in mind, that this option will likely result in you paying more in interest over the long run.
The good news is that you have choices with rates still near historical lows. As always, do your research and consider all the factors before making your mortgage financing decision.
If you have any questions, please don't hesitate to reach out.
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