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Refinancing - Test New Waters

Unless you have an aversion to the daily news (and we can’t blame you if you do), you’ve no doubt heard Economists, Market Analysts, and certainly Mortgage Brokers shouting to the rooftops about what a great time it is to refinance your home. And they’re not wrong - today’s historically low rates, coupled with additional scrutiny towards mortgage regulation, give you all sorts of reasons to tap in to the equity in your property.

But people are naturally adverse to change. A refinance of your loan means a new look into your financial history. There may be closing costs involved. And worst of all? PAPERWORK. Who wants to put themselves through that? You need a compelling reason to make the call to your mortgage professional.

Luckily, said reasons are aplenty. Experts will always lead with the big two - lower your rate, decrease your term. They are the no-brainers, and most likely will result in the biggest financial benefit for you. But we’re here to educate; what are some of the lesser known reasons why a homeowner should refinance?

We’re glad you asked…

Because You Ain’t Going Anywhere

When you first moved into your new house, what was your expectation? You may have thought you were buying a starter home, which likely led your loan officer to suggest an adjustable rate mortgage. But opinions change over time, and now you may love your little neck of the woods. Refinancing into a fixed rate mortgage can protect you from rising interest rates in coming years, and can be easier to plan for and budget.

Because Mortgage Insurance Stinks

Unless you put 20% or more as downpayment when you took out your loan, you’re likely making a monthly private mortgage insurance (PMI) payment. An chances are we’re not talking pennies - depending on where you live and how much you borrowed, this could mean hundreds of dollars down the drain every time the calendar page flips. But in today’s market, home values are rising steadily, which means you’re equity is likely increasing in turn.

What does that mean? Consider this: if you took out a loan of $200K for a house worth $240K, you only put down 17%, and you were required to pay PMI. But what if your home’s worth now stands at $250K? Guess what? You now have 20% equity, and can refinance out of that pesky PMI payment.

Because You Need a Little Scratch

We've talked about building equity in your home over time. But if you are happy with your current rate and term, what else can you do with that money you’ve invested? The answer is whatever you want. It may make sense to cash out some of your equity and make an addition to your home. You could round out your portfolio and buy an investment property. Or maybe your little one turned out to be a genius, and now you need cash to pay that Ivy League tuition.

Just keep in mind: refinancing doesn’t increase your own personal financial responsibility. While refinancing gives you available credit you didn’t have before, only you can put it to good use. Have a long conversation with your mortgage pro before making any rash decisions.