5 Reasons to Refinance Your Home

In the last year, with mortgage rates rising from previous years, refinancing has not been a popular financing option for many Tampa Bay homeowners seeking to utilize their home’s equity or simply reduce their payment and interest rate. With rising property values, homeowners, more so, have turned to HELOC and second mortgage options to finance home improvement projects, consolidate debt, etc. Though HELOCS and second mortgages are great options to finance just about anything, sometimes a cash out refinance makes more sense, even in today’s market. Below are the top 5 reasons to refinance and factors you will want to consider when making the decision to do so. 

Reason #1: Refinance to Lower Your Interest Rate

 Depending on what your current interest rate is and what rate is available to you now, it may be appealing to consider refinancing to lower your total interest paid and potentially lower your monthly payment. Before just refinancing to any rate that is less, there are a few things to consider:

1. Is your new interest rate low enough to justify paying closing costs again, while still saving you money in the long run?
2. Will refinancing also result in other benefits, such as eliminating mortgage insurance payments and lowering your monthly payment?

Ideally, if you are refinancing to lower your rate, reducing your monthly payment and eliminating mortgage insurance is also a goal. Since closing costs are paid again on a refinance (built into your loan) we want to make it well worth the effort and not just refinance at any rate and at any point. If waiting 1 year means we can lower our rate AND eliminate our mortgage insurance, sometimes it’s better to wait. With that said, this decision is not meant to be made on your own. Contact us at Moonlight Mortgage and we will gladly take a look at your current loan and terms and offer advice as to whether or not refinancing now makes sense given your current rate, term and circumstances. 

Reason #2: Refinance to Cash-out on Your Equity

If you have owned your home for a while and have built equity in your home, you may wish to build a pool for your family, make roof repairs, install landscaping or even consolidate your debt. Whatever the reason is for needing the extra money, a cash out refinance may be your best option. A couple of factors to consider when determining whether to utilize a cash-out refinance vs. a HELOC are as follows:

1. How much money do you need and when do you anticipate paying that loan off? 

If your needs are for a smaller loan size that you believe could be paid off in 5 yrs or less, a variable rate HELOC or fixed rate second mortgage may be the best option. With lower loan amounts, closing costs are much less and you can keep your first mortgage intact, which especially may be appealing if you currently have a favorable interest rate. Because a HELOC is typically a variable rate product, the interest rate can fluctuate, which may mean a lot of risk for a high loan amount or longer repayment period. Even with a fixed-rate second mortgage or HELOC, the interest rates are typically higher than a first mortgage, which can make a cash-out refinance more appealing for larger loan sizes.

2. When comparing a cash-out refinance to carrying two mortgage payments (i.e. your first mortgage plus a second mortgage) does the refinance result in a lower payment? 

When comparing your monthly payment on a cash out refinance, knowing if you are saving money on total mortgage payments compared to having a 1st AND 2nd mortgage payment is an important consideration. Your rate may increase with the cash-out refinance option, however, even with the higher rate, if the overall payment is lower than combining your current mortgage payment with a second mortgage payment, then the cash out option makes sense. The amount of cash you need, your current mortgage payment and current rates all factor into determining if refinancing will save you the most monthly. 

3. Does having a fixed-rate loan appeal to you? 

There is security in knowing that your payment will not change. Being able to secure a fixed-rate mortgage for your cash-out needs may not only be the lowest payment option, but it may be the safest option in a volatile market.

Reason #3: Refinance to Convert Between Adjustable-Rate & Fixed-Rate

If you are currently in an adjustable rate mortgage and your fixed-rate period is coming to an end, it is smart to look into conventional fixed-rate options depending on current rates and what your new adjusted rate will be. It may be worth refinancing now. Also, many FHA borrowers must pay mortgage insurance premiums for the life of the loan, if less than 10% was put down when the loan originated. Sometimes, it makes sense to refinance into a conventional loan to eliminate this mortgage insurance, but its rarely a good reason on its own. If refinancing result in a lower rate in addition to the opportunity to eliminate your mortgage insurance, whether switching from an FHA loan or an existing conventional loan, the combination of benefits will make a refinance favorable. 

Reason #4: Refinance to Remove or Add Borrowers

There are many life changes that occur that justify removing or adding borrowers to change who is obligated to the mortgage. Death, divorce and domestic partnership separations are all reasons why changing borrowers may be needed.  Since borrowers cannot simply be removed or added to an existing loan, refinancing the loan is a necessary step.. In some cases, the existing lender will allow the loan to be assumed by another individual that qualifies for taking over payments and the obligation of the loan. Before refinancing, check with your existing loan servicer to see if you have an assumable loan. 

Reason #5: Refinance to Shorten or Extend Your Loan Term

The last and most common reason you may want to refinance is to switch from a 30 yr term to a 15 yr term or do the opposite. Oftentimes, refinancing to a shorter term makes more sense than just doubling your mortgage payment as there are often savings advantages and lower rates associated with shorter terms. In some cases, the opposite may be true. Maybe the goal is to increase your cash flow and extend your term. Though this isn’t a common reason to refinance, it is possible if the monthly savings is the goal. 

Do you need additional assistance to determine whether or not a refinance is the right move for you?

I have said a lot and given you many options to consider, but please do not let these details overwhelm you. At Moonlight Mortgage, we have the knowledge and expertise to guide you in determining what your best course of action is when it comes to refinancing your home, whether it be here in the Tampa Bay area or anywhere in the state of Florida. We love to help and are here for you! Please contact us for further assistance or questions concerning refinancing your Florida home!