{"id":998,"date":"2020-09-24T06:00:31","date_gmt":"2020-09-24T10:00:31","guid":{"rendered":"https:\/\/www.deeds.com\/articles\/?p=998"},"modified":"2024-04-25T23:20:29","modified_gmt":"2024-04-26T03:20:29","slug":"the-benefits-of-refinancing-your-home-strategically","status":"publish","type":"post","link":"https:\/\/www.deeds.com\/articles\/the-benefits-of-refinancing-your-home-strategically\/","title":{"rendered":"The Benefits of Refinancing Your Home \u2014 Strategically"},"content":{"rendered":"\n
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Throughout the years of your mortgage, you\u2019ll likely ask the\nquestion more than once: Is now the right time to refinance?<\/em> First, note\nthat refinancing may be no easier than getting that existing loan. Moreover, from\n2020 on, expect lenders to have stringent\nrequirements<\/a> for mortgage approvals. <\/p>\n\n\n\n

The answer will depend, too, on varied factors specific to\nyour own situation. <\/p>\n\n\n\n

Here are a few reasons refinancing could make a lot of sense\n\u2014 or not. <\/p>\n\n\n\n\n\n\n\n

If You Hope to Lower Your Payments<\/h2>\n\n\n\n

A leading aim of refinancing is to decrease the monthly\npayment due. The more cash you keep available to use, the more options you have.\nSo, for example, you might lower your payments by switching from a 15-year\nmortgage to a 30-year version. You\u2019ll be paying more interest over time, but your\ncurrent goals might justify that, especially when the rates are low. <\/p>\n\n\n\n

Indeed, you don\u2019t even need to have any pressing goals,\nother than to invest. What you save in monthly mortgage charges might perform\nbetter for you if it\u2019s invested in stocks, so that\u2019s another variable to keep\nin mind.<\/p>\n\n\n\n

Pro tip:<\/em><\/strong> Your escrow account is the money\nreserved for third-party charges, such as property taxes. If you refinance your\nhome loan, you might be able to count your current escrow funds as credit for\nthe new loan to lower your new debt principal. Ask your mortgage specialist\nwhether this option \u2014 known as netting your escrow \u2014 can be done if you\nrefinance your home.<\/p>\n\n\n\n

If You\u2019re Not Moving Any Time Soon<\/h2>\n\n\n\n

Do you plan to stay in your home and make mortgage payments on it for several more years? If so, you\u2019ll be more likely to recover your money spent in fees, appraisal costs, and other closing costs, which can easily add up to a few thousand dollars. (The cost of refinancing can run\u00a03%-6% of the mortgage total<\/a>!) \u00a0<\/p>\n\n\n\n

To break down the numbers, try comparing your current and proposed loan by calculating<\/a> principal, mortgage rate, term of years and amortization. If refinancing will cost you about $3,000, how many months will it take, with your monthly payment savings, to break even and recover that outlay? Will your new, lower rate really offset the cost of refinancing?<\/p>\n\n\n\n

Pro tip:<\/em><\/strong> Points (each point amounting to 1% of\nthe mortgage) may be paid at closing to get a lower interest rate. Don\u2019t forget\nto consider any points you pay on the current and the proposed loan \u2014 whether\nthey\u2019re taken in closing costs, or added into your loan principal.<\/p>\n\n\n\n

If You\u2019re in No Hurry <\/h2>\n\n\n\n

Whenever rates drop and refinancing looks especially enticing,\nmortgage companies receive many refinancing applications to handle at the same\ntime. They\u2019ll hear from many of their former clients in addition to the new\nclients they\u2019re assisting with home purchases. When industry experts are\nstretched, the process can take longer. <\/p>\n\n\n\n

Use the time to let your tax consultant know of your plans.\nTax deductions change over time. Modifying your mortgage interest could have\nsome impact on your annual tax return, although it\u2019s unlikely to be major.<\/p>\n\n\n\n

If You Hope to Stop Paying an Adjustable Rate<\/h2>\n\n\n\n

Your adjustable-rate mortgage might have served you well so\nfar, but what if rates go up in the future?  That will make your mortgage more expensive. <\/p>\n\n\n\n

Those pesky percentages add up<\/a> over time. In this situation, applying for a fixed-rate\nmortgage, if you can lock in a low rate, makes sense.<\/p>\n\n\n\n

If You\u2019re Ready to Shake Off That PMI <\/h2>\n\n\n\n

If your existing mortgage has a private mortgage insurance charge\ntacked on, and you\u2019re now in an improved financial situation, speak with your\nmortgage pro about getting a new loan, so you can enjoy your lowest possible\nmortgage rate without paying extra.<\/p>\n\n\n\n

Note that PMI can work the other way, too. For example, has\nthe market value of your home dipped? If so, refinancing could put you in the\nposition of having to pay PMI even if you don\u2019t pay it now. That will put a\ndamper on the reward you\u2019ll get out of refinancing. Here again, speak with your\nmortgage specialist and get an opinion on the cost and benefit.<\/p>\n\n\n\n

If You Need to Pay Your Debt Off Faster<\/h2>\n\n\n\n

You might want to pay\nyour loan off faster<\/a>, especially if you are coming into your golden\nyears and want to plan to have your debt out of the way rather than risk\nburdening your heirs. But think very carefully before shifting to a 15-year\nloan on your primary residence. It limits the choices you can make with your\nincome, and you just never know when you might need those choices. <\/p>\n\n\n\n

Arguably, the better strategy is to stick with a 30-year mortgage,\nbut pay extra each month on the principal. You will save money on interest\nwithout going through the steps of refinancing. Should you happen to face any\nfinancial challenges, simply discontinue your extra payments on the principal.<\/p>\n\n\n\n

If You\u2019re in the Position to Obtain a Drama-Free Approval<\/h2>\n\n\n\n

You are most likely to be approved without too many cliffhangers\nin the process if you:<\/p>\n\n\n\n