To Refi or Not To Refi?
There are many reasons you might choose to refinance your home mortgage. Mortgage interest rates have plummeted, and now is a good time to consider two common types of mortgage refinances. The following scenarios are for example purposes only.
Cash Out Refi
- Tap into home equity to get access to cash for medical expenses or home improvements.
- As of Q4 2019, American homeowners had nearly $19 billion in home equity.
- One in four mortgaged homes is considered “equity rich” — 50% or more of the mortgage has been paid off.1
- Individual households gained an average of $7,300 in equity in 2019.2
Rate and Term Refi
- Refinance to save money by changing your loan’s terms.
- Shorter term — If you decrease your term: Pay less interest over time, save thousands.
- Longer term — If you increase your term: Monthly mortgage payment can drop by hundreds.
- Eliminate private mortgage insurance (PMI) if you have 20% equity.
- Roll a piggyback loan into your first loan (they often have higher rates).
- Switch from an adjustable-rate mortgage (ARM) to a fixed-rate loan or vice-versa: ARMs are suitable for people who plan to only stay in their homes a few years, need liquid cash each month, or who expect a boost to their income in the near future
Refinancing your mortgage requires you to pay lenders’ fees and closing costs, just like a regular home loan. Is it worth the money? A refinance might be worth it if:
- You’ll get an interest rate at least 1% lower than your current mortgage.
- Your ARM is about to reset.
- Your credit score is in the 700s or above.
- You have at least 20% equity in the home.
- You have a low debt to income ratio.
- You’ll still be in the home when you reach your break-even point (the point when you start saving more than you spent).
Call one of our knowledgeable mortgage experts today to review your current mortgage, your housing plans, and your finances so you can decide if refinancing is the right decision for you!
Sources:
[1] Attom Data Solutions, “U.S. Homeowners Remain Four Times as Likely to Be Equity-Rich Than Seriously Underwater,” May 7, 2020.
[2] CoreLogic, Homeowner Equity Insights report, data through Q4 2019.
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