Why Refi?

There are many reasons to refinance your mortgage, some obvious and some a bit obscure.  Some of the situations are complete opposites of one another and will depend on your unique financial goals and/or risk appetite.  Here’s a list of some reasons to refinance. 

To get a Lower Interest Rate:

If mortgage rates are lower now than when you took out your mortgage, then this one is the no-brainer.  A typical rate-term refinance allows homeowners to reduce their interest rate, so you can enjoy a lower monthly payment.  Beware the potential downside of resetting the clock (term) on your mortgage.  The term of your mortgage refers to the amount of time it takes to repay the mortgage.  You would need to specify that you want to go with your current remaining term.

To change the Term of your Mortgage:

Or perhaps, you want to change the term of your mortgage.  Most mortgages are done over a 30-year repayment period or term.  Shortening the repay back term is another common reason to refinance.  Some folks want to pay down their mortgages asap, or at least not pay them down at a snail’s pace.  If this is you, there is a huge benefit to refinancing from a 30-year fixed into a shorter-term loan such as the 15-year fixed.  Sometimes a 15-year term also comes with a significantly lower interest rate, which helps you to pay your mortgage off a lot faster without necessarily breaking the bank.  Of course, that is dependent on the rate you had to begin with and where rates are today.

The exact opposite situation may apply too.  You might refinance to extend the loan term, to lower your monthly payments.  Not everyone wants to pay down their mortgage in under 10-years, instead preferring the annual tax break.  And for some, making the larger monthly payment may be making that 15-year payment is very difficult.  Perhaps a change in your personal circumstances means the 30-year term creates a more sustainable payment moving forward.

To change Loan Products:

There are a wide variety of mortgage products out there--broad categories, such as, FHA or Conventional or Adjustable rate or Fixed rate or Fully amortizing to Interest-Only—and various combination of these groups.  Just because one product was perfect when you were got your mortgage does not mean it is the perfect product for you today.  Product changes are another common reason to refinance.  Your personal circumstances dictate what product make sense now.

To take Cash-Out:

The age-old cash-out refinance is a great way to free up your home equity and put it to work.  Perhaps you want to make some home improvements or buy a second home or make another investment.

To remove Someone from Title:

You may need/want to add or remove someone from title and/or the mortgage. If this is the case, a refinance can be an appropriate vehicle to do.  Maybe there was a divorce and you’re buying someone out.  Or maybe you’re ready to fly solo and remove mom and dad as co-signers.  Again, this could be a good time to snag a lower interest rate or make a product change too.

To apply a Lump Sum to Lower your Balance:

Say you’ve come across some money recently and as such have the ability to take a big chunk out of your mortgage balance.  If you’re one of those people who likes to pay down the mortgage as quickly as possible, applying a lump sum to lower the balance (and the loan-to-value or LTV) will lead to a lower monthly payment, assuming you refinance (or recast).  A lower interest rate and/or shorter term could apply here too.

To consolidate Multiple Mortgages:

This is another classic reason to refinance.  You’ve got multiple mortgages (most often, two) and want to consolidate them into one loan.  A refinance is often a great way to accomplish this while also winding up with a lower interest rate.  Many second mortgages have higher interest rates or are adjustable rate, so this is can be a money-saving move.

To consolidate your other Debts:

Another frequent reason to refinance is to consolidate other non-mortgage debt, such as credit cards or other debts with higher interest rates.  This could be a wonderful move, just remember not to run up your credit cards again.