Our lives change over time, and so do our financial realities. In the ebb and flow between milestones, the good news is that you can capitalize on the planning you’ve already put into place by leveraging your home’s equity and refinancing your mortgage. Refinancing isn’t for everyone’s situation; it can cost from 3% to 6% of the loan’s principal, and you’ll have to go through an appraisal, title search, and application fees. But if the following describes you, talk to your lender—there may be great opportunity to save money.
You took out an FHA Loan when you bought your home, but now you’re in a better place financially.
When you decided to become a homeowner, you had a lot of energy but didn’t have a lot to put down, so you took advantage of an FHA loan that only required 3.5% down. Now, a few years down the road, your finances—and your credit—have changed for the better. You’re ready to make some changes, and stop paying for mortgage insurance. If you have 20% equity in your home, it may be time to refinance to a conventional loan. In this scenario, a conventional loan will allow you to drop your mortgage insurance payments, and you’ll save a greater amount of money over fifteen to thirty years.
A big (expensive) life event is looming, and you’re going to need some extra cash sooner than you realized.
Maybe you have a child headed to college, or one that’s getting married soon. Perhaps there’s a parent that needs financial help as they move into assisted living. Whatever the situation, a cash-out refinance or home equity line of credit (HELOC) can give you access to cash when you know you have long term financial responsibilities on the horizon. Both options allow you to leverage your home’s existing equity to cover costs when you haven’t saved the amount you think you’ll need over a certain period of time. Keep in mind that both will require taking on debt, so it’s vital to evaluate how your finances will be affected over time.
You’re finally ready to make your house your dream home.
The business you put blood, sweat and tears into is finally taking off. Your spouse got that life-changing promotion—way to go, partner!—and paid off those law school loans. The bottom line: You’re in a good spot and you want to pay off debt at a faster pace, and that includes paying off your home in less than 30 years.
It’s a good idea to think about refinancing from a 30-year to a 15-year mortgage, keeping in mind that your loan originator can help you determine the difference between a fixed and variable interest rate.
It might be you’re not prepared to pay off your mortgage in 15 years, but you’re ready to put some love into the starter home that’s primed to be what you’ve always wanted. You might consider refinancing to a rehab loan, which allows you to roll in the cost of a remodel or upgrade into your refinance. For more information over rehab loans, check our video library.