In Home Loans

5 Reasons to Consider a Mortgage Refi This Year

Has your personal or financial situation changed? Has your home value increased? Have interest rates gone down from when you originally financed your home? If the answer to any of those questions is “yes,” now may be a good time to take advantage of low interest rates by refinancing your home.

We are still experiencing historically low interest rates, but this may not last forever. This combined with rising home values makes the time particularly favorable to refinance for some homeowners. If you’ve built up some equity, are looking to pay off your mortgage quicker or simply want to lock in a lower interest rate, it’s time to talk about a home loan refi. Here are five reasons why you should lock in a low interest rate and refinance your home in 2017.

Drop “PMI” — Mortgage insurance protects the lender from losing money if you were to fall into foreclosure. If you made a down payment of less than 20 percent when you financed your home, you may be paying PMI (Private Mortgage Insurance). On a conventional loan, lenders are required to automatically drop PMI once the loan balance drops to 78 percent of the original value of the home. If you keep track of your payments, you can request that the lender drop PMI once your loan balance drops to 80 percent without refinancing. However, if you have an FHA loan, you are required to carry mortgage insurance for the life of the loan. But if you meet qualification requirements, you may be able to refinance under a conventional home loan without mortgage insurance if your loan balance is 80 percent or less. Getting a home appraisal may help you refinance to drop mortgage insurance even sooner if the value of your home has increased. Dropping mortgage insurance could save you a couple hundred bucks on your monthly payment, so it’s certainly worth considering.

Lock in a Lower Interest Rate — Interest rates have remained low in comparison to previous decades (in the 1980s, rates hit 17 percent!). Depending on when you originally financed your home, you may be able to refinance for a lower interest rate, which could mean big savings on your monthly payments. But you’ll need to act quickly on this. Today, the average rate is slightly above 4 and some experts predict they could reach 6 percent by 2019. So don’t hesitate. If you’re currently paying one percent or more of the market rates, now is the time to refinance and lock in a low interest rate, because rates won’t be on the decline again anytime in the foreseeable future. You can run the numbers for yourself and estimate the impact with our online refinance calculator.

Shorten Your Loan Term — If you are financially able to make a higher monthly payment, it may be smart to refinance at a slightly higher interest rate but for a shorter term so you can pay off your home loan quicker. Even though you may pay a higher rate, you’ll pay less interest over time, saving you money in the long run. Without refinancing, you can still pay off your loan quicker by making additional payments toward principal each month, but refinancing puts you on a schedule that will hold you accountable to staying on track with your goal to pay off your mortgage sooner.

Consolidate Debt — Mortgage interest is typically far less than other forms of interest. For instance, a “low” credit rate on your credit card is probably somewhere around 12 percent or more, while your mortgage interest may sit anywhere between four and six percent. Did you know you can use your equity to refinance your credit card, student loans and other debt to pay off those debts? Consolidating your debt by refinancing your home is a great way to improve your financial situation and make a dent in your monthly debt payments.

Get Ahead Financially or Cover Big Ticket Expenses — If you want to boost investments or your 401K, or simply need cash to remodel your home or cover the cost of sending your child to college, a cash-out refinance can help make that happen. Cash-out refinancing is an option that allows you to receive part of your home’s equity in the form of cash at the same time you refinance your loan. Here’s how it works: If your original loan was for $300,000 and you still owe $200,000, you have $100,000 in equity. You can receive part of that equity in cash. For example, if you want to take out $25,000 cash, you can refinance your home for $225,000 and receive $25,000 in cash. Your new loan will be larger than your current loan balance, but may be at a lower interest rate than your current loan and you can use the money however you want. The cash-out option is a great way to cover the costs of expected or unexpected life events, and any other personal or financial needs you might have.

Refinancing your home in 2017 might make a lot of sense for you. Spend a few minutes discussing it with one of our home loan experts, and learn whether refinancing your mortgage will add up to a big benefit for you.

All loans subject to credit approval. Rates and fees subject to change. Mortgage financing provided by PrimeLending, a PlainsCapital Company. Equal Housing Lender.©2017 PrimeLending, a PlainsCapital Company (NMLS: 13649).

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