A few Good Reasons to Refinance

You may be tied to a house payment for the next few decades, but you don’t have to stick with the same mortgage or mortgage payment forever. Your mortgage can change as your needs do. Here are some reasons you might want to consider for refinancing your mortgage.

You need a large influx of cash immediately. There may be a significant household expense looming – perhaps remodeling your kitchen or replacing the roof. College tuition might be due very soon. Or maybe you’re interested in buying a second property. Assuming that you have enough equity built up in your home, cash-out refinancing can be a viable solution.

You could use a little more cash in your account each month. Your monthly cash flow is a little anemic, and you'd like to give your finances more of a "cushion." By refinancing your home loan to a lower interest rate you could significantly reduce your monthly mortgage payment. Reducing your interest rate by even one-half of a percent could make an appreciable difference. However, because the fees associated with refinancing can reach into the thousands, it’s important to thoroughly run the numbers and make sure you’ll be in your home long enough to recoup the costs of such a transaction. For instance, if your total closing costs for the refinance come to $2,000 and your monthly payment is lowered by $80, it'll take 25 months for you to recoup the initial outlay and break even financially. Do you plan to continue to live in the house at least that long? Our Should I Refinance? Calculator can help you decipher the numbers.

You’d like to get rid of your credit card debt. Another great use for cash-out refinancing is debt consolidation. You can use the funds from a cash-out refinance to pay off high-interest credit cards, essentially transferring the debt into your home financing. And because mortgage rates are generally lower than credit cards (and always lower than high-interest cards), not only will your total monthly debt payment likely be lower, but as an added bonus the interest you pay may also be tax deductible. As always, check with your tax advisor to be sure.

You have an adjustable-rate mortgage, and your monthly payments are rising. You're not alone. If you have an ARM, it's likely that you’ve seen your payments increasing recently as interest rates have risen. If this is the case, you may want to refinance into a fixed-rate mortgage to stabilize your monthly payment – and possibly also your nerves.

Your credit score has risen. You’ve employed discipline and persistence, and repaired your credit file. Now you can take advantage of that higher score by qualifying for a lower interest rate mortgage and, therefore, a significantly lower monthly payment.

You'd like to pay off your home sooner. Perhaps you received a raise or bonus at work, or paid off your car. If you're planning to own your home into retirement, refinancing your mortgage from a 30-year term down to 20 or even 15 years might be a sound financial move. Your payments will rise, but you use the extra money to cover the difference. And by paying off your home sooner, the interest savings over the life of the loan will be tremendous, not to mention the fact that you'll own your house free-and-clear that much sooner.

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