Is it Time to Refinance?
There are all kinds of good reasons to refinance. You may be looking to lower your monthly mortgage payments or take equity out of your Connecticut home for a home improvement project or for college tuition. Or you might want to refinance to move to a fixed rate loan, gain short term savings through an adjustable rate mortgage, or to eliminate the need for mortgage insurance. Whichever way, you want to be sure that refinancing your Connecticut mortgage makes sense and that the new program will be beneficial to you.
Whether it makes more sense to refinance and take cash out or borrow using a home equity loan depends on your financial goals, the interest rates on the new home loans, the interest rate on your existing mortgage, your marginal income tax rate and your ability to use the mortgage interest deduction on your income taxes.
Your ability to refinance may also be affected by the amount of equity you have in your Connecticut home. Although equity has been a challenge for some homeowners over the past few years as property values have depreciated, we have some options to turn refinancing into a possibility.
Some popular reasons to refinance include:
Everyone would like to lower their monthly mortgage payments. The most important consideration is whether the cost of the loan is worth the savings. Traditionally, the rule was it made sense to refinance only if you could reduce your loan interest by about 2 percentage points. However, available loan products in the market today give you more to consider when deciding to refinance, making refinancing an attractive and affordable option. A McCue Mortgage loan originator can discuss your situation and help you determine if refinancing makes sense for you.
As you know, each monthly mortgage payment you make helps you pay down the outstanding loan on your home. If the value of your home increases due to favorable housing markets, your home may be worth more than when you bought it. Through refinancing, you can free up some of the money you have paid off on your loan balance and access equity from the appreciation of your home value for other purposes. There are many reasons people take equity out, ranging from paying for a child’s college tuition to paying of debts that have non-tax-deductible interest costs (the interest on home loans is tax deductible). Other reasons include funding home improvement projects or buying a second vacation home.
If you purchased your home with less than a 20% down payment, you most likely are required to have mortgage insurance. Many mortgage insurances are no longer required when you reach 80% equity in your home. If the combination of monthly mortgage payments and appreciation of value of your home has gone up 20% due to a favorable housing market, you may have eliminated the need for insurance. Refinancing to eliminate mortgage insurance is a great way to take advantage of better interest rates and reduce your monthly mortgage expense.
If you have an adjustable rate mortgage, you probably got a low initial interest rate. However, periodic rate changes and the possibility of future rate hikes might make you a little uneasy when the loan begins to adjust. Switching to a fixed rate loan might be the answer. But there are a host of things to consider like how long you plan to stay in your home. If you plan to be in the house for a short period, then an ARM might be appropriate. There are adjustable rate mortgages on the market that provide a fixed rate for a set period, say 5 years, and then change to an adjustable rate thereafter. The first five years of an ARM usually have a significantly lower interest rate than a fixed rate loan, but will increase over the remainder of the loan life. This is also an important factor when deciding to refinance to a fixed rate mortgage. If you plan to stay long term or retire in the house, then perhaps a fixed rate with a 15, 20 or 30 year term might be best. Again, a McCue Mortgage loan originator can help you determine the best course to take.