For many homeowners who still have a mortgage, refinancing that mortgage is one of the best things that they can do for themselves financially and personally. Many homeowners have heard about refinancing, or even have been made refinancing offers, but aren’t sure if they should do it. What if you feel comfortable with your mortgage arrangement right now? What about those closing fees of the refinancing process? What might you as a homeowner stand to gain by refinancing your mortgage? The truth is, a lot.
Save at least $100/month
Rule of thumb: if you can save at least $100 per month on your mortgage payments, the refinance is worth the closing costs. If your closing costs come to $2,000 and you would save $100 per month on your payments after you refinance, then in less than two years you’re putting a free and clear $100 per month, every month, in your pocket. And in a lot of situations, homeowners will save much more than $100 per month.
Roll it in
Also, with a refinance, you can roll the closing costs into the loan. While this of course raises the loan amount and thus raises your monthly payment above what it would be, you don’t need to worry about having a lot of money for closing costs if you choose to refinance. So your actual cash flow can improve immediately.
You can save even more money by paying off other debts with your home mortgage refinance. Have you got outstanding car loans? Are you carrying credit card debts? Are you paying back personal loans? When you refinance your mortgage, provided that you have enough free and clear equity in your home you may be able to pay off other loans. Even if you wouldn’t save at least $100 on your mortgage payment alone, what if altogether you would save $400 per month?
Save a pretty penny
In addition to saving your household a very pretty penny, you would raise your credit score by paying off loans and carrying less debt through a home refi. Realizing a substantial total monthly savings by reducing total debt burden is one of the two best reasons to see about a home mortgage refinance. The other one is…
Faster…some tips to get you going
Build equity in your home faster by paying off your mortgage faster. Great peace of mind comes from owning your own home free and clear. In the meantime, it makes more sense to free up more equity in your home faster just in case as time goes by you decide to sell or you decide that you could use a home equity line of credit. Some homeowners refinance their mortgage and their monthly payment remains about the same or rises; but, they still go through with it in order to pay off the mortgage faster.
If for instance you have a 30 year note with 22 years still to go, it could make sense for you to refi into a 15 year loan. Are you paying it down with bi-weekly payments now? You can continue to do the same thing with the 15 year loan and really get the mortgage totally paid off much faster. And all the while, your free and clear home equity value will be quickly increasing.
Borrow against your home’s equity at a low interest rate. If you’re looking for some cash, you can refi your mortgage and (with enough equity in your home) get “cash out” at the closing table. This is like getting a low interest rate HELOC. (You should not refinance your mortgage exclusively to get cash out, however.)
Get out of an adjustable rate mortgage. Adjustable rate mortgages are terrible unintended consequences of the government’s NINJA loan initiatives put in place in the 1990s. 98.9% of homeowners are better off in a fixed rate mortgage. If you took an ARM to get into your house, refi out of it as soon as you’re able to after any early payoff penalty period expires.
As you can see, refinancing your mortgage could be a brilliant personal finance move for you.
About the Author: Joe Fern is a real estate specialist in the area of Perth, Australia and writes on topics such as Land For Sale in Piara Waters and more.