People refinance their homes for many different reasons. Depending on your personal circumstances, it can sometimes make sense to refinance. For instance, you may be able to get a lower mortgage interest rate or you may need additional cash for something important like funding your child’s university fees. Here is a look at some of the times you may want to consider refinancing your property.
Interest Rates Fall
Mortgage interest rates can go up and down, depending on the state of the economy as a whole and decisions made by the Federal Reserve. If you find that the economy has impacted interest rates so that they go down, it could be a good idea to refinance your home. For example, if your current interest rate is 4.5% and rates go down to 3.5%, it makes sense to consider refinancing your property to get the lower rate. Even if the spread is less than that example, it is a good idea to talk to a professional to gain more clarity about refinancing costs and savings. You can search rates here to see how different mortgage lenders compare.
You Need Funds
If your property is worth more than the amount you owe on your mortgage and you find yourself needing funds to pay for things like education, setting up a business, or any other reason, you have the option of refinancing your home to pull out cash. While you should always carefully consider this option, if you need cash quickly, refinancing your home could be the right choice.
You Urgently Need Funds
While it can be a good idea to refinance your home if you need funds for something important like funding college or setting up a business, it is usually inadvisable to refinance simply to get some extra cash. However, if you find yourself in a tight spot, it can sometimes make sense to switch from something like a thirty or forty-year loan to a fifteen or twenty-year loan so that you can take out some cash. Only go with this option if it makes financial sense.
Your Income Significantly Increases
Converse to the last point, if you suddenly find your income increases significantly, you could consider refinancing so that you can pay off your mortgage quicker. For instance, if you have a thirty-year loan, you could refinance to do a fifteen or even ten-year mortgage loan. Your payments will be higher, but the interest rate will be lower, and you get to pay off your mortgage much more quickly.
You Could Reduce or Shorten Your Private Mortgage Insurance
A few years ago, the Federal Housing Association changed its rules so that homebuyers who were paying less than a 20% down payment had to purchase private mortgage insurance. If you now refinance your property and take out a shorter loan, of say fifteen to twenty years instead of thirty, you will be able to get rid of the cost of your private mortgage insurance and perhaps still be able to take additional funds out of your home.
Refinancing to Buy Out Your Partner
If you co-own your home with your spouse or somebody else, you may get to the point where you wish to buy that person out by refinancing. It is common for divorced people to refinance so that one can keep the mortgage on the home while the other is taken off the loan. This situation can also apply to homes that are bought with friends, family members, or business partners.