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When Refinancing Makes Sense

Choosing to refinance can be a significant financial decision, especially if you refinanced or bought a home when interest rates were at recent historic lows. Let’s be honest: thinking of giving up the low rate of the century can be painful! But holding on to a rate should never get in the way of living your best life. A refinance can actually be extremely beneficial when adapting to unexpected life situations or meeting new long-term goals. Here are some situations where it might be worth considering refinancing even if you have an already low rate.

Change of Circumstance

If your credit score has improved, your financial situation has changed for the better, or your home has significantly increased in value, refinancing may give you better terms on your loan. Specifically, with employment factors such as a higher income, decreased debt-to-income ratio, or improved employment stability, you are most likely eligible for better loan terms. Under these circumstances you may be able to:

  • Eliminate mortgage insurance.
  • Switch from an adjustable to a fixed-rate mortgage.
  • Shorten the loan term.

Debt Consolidation

Recent data shows that U.S. household debt is at an all-time high and average credit card rates are at 27.9%. If you have multiple high-interest debts, such as credit card or personal loans, a cash-out refinance could help you streamline your payments and potentially lower your overall interest costs. Knowing your Total Monthly Debt and Cost of Debt can help you decide if paying all those monthly balances is worth holding onto your low mortgage rate.

Step 1: Determine Your Total Monthly Debt
To find your total monthly debt, add up your monthly minimum payments, including your mortgage payment. If the total payments are more than the cost of a monthly payment on a cash-out refinance, and you don’t have the means to pay balances down in the near future, a refinance may be a good option for you.

Step 2: Cost-of-Debt Analysis
A Cost-of-Debt analysis compiles your debts and shows interest over time with a total combined rate. We recommend this Cost-of-Debt calculator. Your total combined interest rate, even with a low mortgage rate, may be higher than you think!

Home Improvements

A cash-out refinance can be an effective means of making large-scale improvements on a home with significant equity. While giving up your low-mortgage payment is not ideal, remodeling to get exactly what you want may still be advantageous when considering the stress and cost of moving and financing a new home. And waiting for rates to drop is not worth delaying your aspirations, especially considering the historic lows we saw will most likely never return. Ask a mortgage professional to run analysis on a home equity line, cash-out refinance or renovation loan to determine the best option for your budget and goals.

Keeping a tight hold on your home’s low-interest-rate past may just be holding you back from better things ahead. Consult with a mortgage professional, like us, to help you chart your best financial course for the future. At Movement Home Loans we specialize in debt consolidation advice and can provide cash-out refinance and home equity products that fit your long-term goals.

Cori Pugsley is a Mortgage Advisor with Movement Home Loans, a locally-owned and operated mortgage brokerage offering nationally-competitive rates, astute counseling and reliable closings. Contact her with questions or to apply for a loan.

Loan Officer, NMLS #2300754

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