Lowering Your Monthly Payments

Everyone would like to lower their monthly mortgage payments. The question 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 2 percentage points. However, with more flexible products on the market today, there are a variety of other things to consider when deciding to refinance. A McCue Mortgage loan representative can discuss your situation and help you determine if refinancing makes sense for you.

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Taking Equity out for Specific Reasons

As you know, each monthly mortgage payment you make helps increase the equity you have in your home. At the same time, 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 this money 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.

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Refinancing to a Fixed Rate Loan or an ARM

If you have an adjustable rate mortgage, you are probably pretty happy with your interest rate. However, periodic rate changes and the possibility of future rate hikes might make you a little uneasy. Switching to a fixed rate loan might be the answer. But there are a host of things to consider. How long you plan to be in the house becomes an important factor when deciding to refinance to a fixed rate or another type of ARM. If you plan to be 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. If you plan to 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 representative can help you determine the best course to take.

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Refinance to Eliminate Mortgage Insurance

If you purchased your home with less than a 20% down payment, you most likely are required to have mortgage insurance. As you build up equity in your home and reach the point where you have more than 20% equity, you might want to consider refinancing to eliminate the required insurance. Furthermore, if the value of your home has gone up 20% due to a favorable housing market, you have built up equity based on the simple fact that your house is worth more. If you’ve built up equity due to an increase in the value of your home, you may not be able to cancel your mortgage insurance. However, you may have the option to refinance and use the equity as a down payment and eliminate the need for insurance. You’ll want to do this, if you get a better interest rate in addition to eliminating the mortgage insurance.

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