Considering Refinancing Your Home Loan?

The following is a guest post by Betsy Fallwell.

Are you paying a high interest rate on your mortgage? Could a different type of mortgage work better for your future goals? Need to access the equity in your home for other reasons? These are just a few of the many reasons why a home loan refinance may be perfect for you.

Why A Home Loan Refinance Makes Sense NOW

I’ve got four words for you: record low interest rates. When I bought my first home almost seven years ago, any rate below 6% was considered great. Today, average interest rates on a 30-year fixed mortgage – the most popular type of home loan – are below 4%.

That’s why a home loan refinance makes sense in today’s financial market; but why does it make sense for you, specifically? The reasons are countless.

Debt Consolidation

The average American has nearly $10,000 in credit card debt. Nearly 20% of American households carry student loans. In other words, we’re a nation in the red. Debt consolidation under a home refinance can be the first step in digging out from all that debt.

One type of home loan refinance allows you to bring many other types of debt under your mortgage. Although this type of refinance does have its pitfalls – you almost certainly won’t qualify for the lowest mortgage rates available, even if you have excellent credit; in fact, you’ll likely pay a higher interest rate than you’re paying under your current mortgage – it also has its benefits. Credit card interest rates are notoriously high; rates on vehicle loans are also significantly higher than mortgage rates. Consolidating your debts under your home loan can help you save money in the long run.

But what if you’re more interested in paying down your debts right now? There’s a refinance option for that, too.

Cash-Out Refinance

Maybe you need money right now to pay for your child’s college tuition. Perhaps you’re facing steep medical bills. Or maybe you want to pay down your credit card debt. Whatever the reason, if you need cash immediately, a cash-out refinance may be the perfect option for you.

Just as with a debt consolidation refinance, you won’t be able to get the rock-bottom interest rates with a cash-out refinance, since by pulling money out in the process, you’ll lose some of the equity in your home. Additionally, if you pull so much cash out that you have less than 20% equity in your home, you’ll be hit with private mortgage insurance, or PMI, which your lender will require to protect itself in the case that you default on your payments.

However, if you have tens of thousands of dollars in equity in your home and need cash right away, this type of mortgage product can help you access the equity you already have in your home, and turn it into liquid assets you can actually use. In other words, it turns static money and makes it work for you.

The Wrong Type of Loan

Mortgages come in all sorts of shapes and sizes. There are fixed loans and adjustable-rate mortgages, as well as interest-only products. All of these have different terms and interest rates. Say when you got your first mortgage, you were earning a big paycheck and easily able to make big mortgage payments, so you took out a 15-year loan; now, though, you’ve had a financial setback and could use a lower mortgage payment. A home loan refinance to a 30-year fixed loan could still get you a good interest rate, but spread the term over a much longer period, netting you lower monthly payments.

Or perhaps you’ve got an adjustable-rate loan whose introductory period is about to end. If you want to avoid a big jump in your interest rate – and monthly payments – refinancing to a fixed rate product would stabilize your payments.

To see if a different type of mortgage – and a home loan refinance – could work for you, get in touch with a mortgage professional, like a mortgage broker. These men and women work as go-betweens for lenders and borrowers, helping clients like you evaluate a broad range of mortgage products without worrying how much shopping around for a loan will cost you… because these pros work on commissions from the lenders you choose!

This guest post has been made possible by Mortgage Choice.