Recently, the Federal Reserve recently voted for the first benchmark interest rate hike in many years. For several years prior, interest rates remained near historic lows, and now, it’s expected those rates will steadily begin to climb. While that’s certainly good news for risk averse investors, heavily emerged in bonds, certificates of deposit, and low turn-over mutual funds, it means new homebuyers and re-sellers will probably pay a bit more over the course of their home loans. However, because interests rates aren’t directly tied to the same dynamics, mortgage products still offer great incentives. If you’re on the fence about when to refinance, there are definitely some good reasons to make the move now.
5 Reasons to Refinance Your Home
Homeowners generally refinance to take advantage of long-term savings. When there’s enough equity in a home and no need to move in the next five years, it’s usually a good idea to refinance a home. However, there are certainly scenarios that make refinancing a bad financial decision. For instance, if you plan to move in under five years, you’re very likely not to recoup your closing costs through the monthly savings on your mortgage.
“Mortgage interest rates are at all-time lows, which means that refinancing your home should be a no-brainer, right? Wrong. The truth is that refinancing your mortgage is a big decision involving many factors. And according to industry experts, being able to reduce your monthly mortgage payment or lower your interest rate are not always the best reasons to refinance. As you’ll see below, refinancing your mortgage can backfire and actually end up costing you money – not to mention a lot of paperwork.” —Yahoo Real Estate
Another situation which is more “iffy,” also depends on how long you’ll stay your the property: remodeling. Some homeowners access their equity for home improvements, which isn’t a bad thing, except when they aren’t going to stay put long enough to realize the investment. Most home improvement projects ROI require five or more years to be worthwhile. Right now, though, interest rates are still very low, and, because of the Federal Reserve’s decision, it’s a good time to take advantage and refinance for the following reasons:
- To payoff credit card debt. Interest rates are hovering just under 4 percent, and, while that’s not the lowest in recent years, it certainly beats credit card interest rates which often charge in the double-digits, ranging from 12 to 22 or more percent. It’s better to be free of such costly expenses, provided you don’t add more to those already hefty balances.
- To bolster your retirement savings. The number one reason for not having enough in retirement doesn’t have as much to do with investment strategy; it has to do with lack of savings. Lack of savings is the number one reason people do not acquire enough money for retirement. So, use what’s available to boost your retirement and do it with tax benefits.
- To get out of an underwater mortgage situation. At the end of this year, the Home Affordable Refinance Program or HARP, will expire. This program was introduced precisely to provide relief to underwater mortgage holders. Check the requirements and if you’re qualified, now is definitely the time to refinance.
- To be free from a costly adjustable rate mortgage. Adjustable rate mortgages are enticing home buying acquisition products, but these debt instruments can turn the joy of home-ownership into a nightmare. Act now to lock in an affordable rate and save thousands of dollars.
- To secure a better interest rate and shorten the term of your home loan. If you’re current interest rate is above 4.5 percent, it could be a good decision to refinance and shorten the length of your home loan to a 20 or 15 year mortgage.