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Should You Refinance?

Posted onAuthorShae Henrie
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You may not need a map to find your hidden treasure. It could be, literally, right beneath your feet. Sometimes, the best way to get the most out of owning a home is to refinance your mortgage. Refinancing can be a powerful tool that could help you lower monthly payments, pay off your mortgage faster, or save tens of thousands on interest in the long-run.. Many don’t understand how to refinance and others wonder if it’s the right decision. Here are some factors to consider.

Take Advantage of Low Interest Rates

In the past, interest rates were high and the amount of buyers was low. Today, it’s not uncommon to see rates below 3%. Interest rates are one of the biggest factors to consider when it comes to getting a home loan or a refinance.

The Low Interest Rate Advantage

Let’s say you have an interest rate on a 30-year mortgage for $300,000 at 5%*. Your monthly payment would be around $1,610. If some years have gone by and the amount you owe on the home has dropped to $260,000, a refinance could make your monthly financial picture look a lot prettier. Here’s how:

If your lender offers you a rate of 2.9%* on $260,000, your mortgage plummets to $1,082. Because you were paying $1,610 before, you will be saving $528 every month.
For the sake of simplicity, this example doesn’t take into account taxes and insurance, but if you were paying private mortgage insurance (PMI) before you refinanced, the lower principle and higher home value would free you up from that as well, resulting in additional savings.

Refinancing to Save on Your Mortgage as an Investment Strategy

With the help of some basic investment tools, you can save even more when you refinance. If your budget can sustain your current mortgage payment, you could still refinance for the purpose of using the money you save—to make more money. Here’s are some ways to use your refinancing savings as an investment vehicle:

  • Take the money you save and invest in CDs (certificates of deposit). You can save up and then invest or you can start as soon as you hit the minimum and open several at once.
  • Use the money to contribute to a retirement plan. This is one of the most profitable techniques because the money gains interest over a longer period of time. Eventually, you can have a pretty little nest egg waiting for you when retirement rolls around.
  • Invest in the stock market. Whether you go with traditional stocks, ETFs, or indices, a conservative strategy can still provide handsome rewards.
  • Invest in a business. You can put money into a business idea that’s been spinning in the back of your head for a while.

    • Refinancing for Home Improvement

    Home improvement projects that have been lingering for a while are easy to knock out if you have the cash to do it. Whether you want to take your home to the next level for personal reasons or to add to its value, refinancing can help you get your hands on the cash you need.

    If you want to boost your home’s value, you should first check to make sure the uptick in the appraisal is going to be more than the sum of the cost of the refinance and the improvements. It may be best to consult a realtor or do your own comps to figure out how much value you’ll be adding to your home. Here’s how to do it:

    • Find a graph of home values in your area—for your type of home—over the last 10 to 15 years. Print it out. If there’s an upward or downward trend, use a ruler to extrapolate the approximate selling price of your home when you plan to sell it. Alternatively, you can consult a licensed real estate agent. A local agent will be able to give you a good idea of what is in demand in your area.
    • If you plan on adding a bathroom, bedroom, or other space, find a similar graph for homes with that added feature and do the same thing.
    • Compare the expected value of your house when you may sell to what it would be worth without the remodel.

    If the difference is higher than the cost of your refinancing and remodeling, you will be making a profit.

    When to Think Twice About Refinancing

    If you have a low interest rate already, refinancing may not be worth the cost, especially if you recently purchased your home. If you owe close to what you paid for the home and the refinancing interest rate isn’t much lower than what you currently have, it may not be worth it.

    In addition to that, you should compare the monthly savings to the amount of time you plan to spend in the home, weighed against closing costs. If this is your forever home, a refi might be worth it if everything else is right.

    Consult Homie Loans™***

    Refinancing can be a powerful financial tool. If you’re ready to crack open the treasure chest by refinancing your home, Homie Loans is here to help. Homie Loans has quick turnaround on refinances, so you’re not left hanging. If you find a better rate, we can give you $500 back**. Learn more about Homie Loans today.

    *For illustrative purposes only. Rates Vary. Contact Homie Loans for a quote today.
    **Terms and conditions apply. Click here to learn more.
    ***Homie Loans, NMLS# 1016597, UT MB#8533383, AZ MB# 0945972