Refinancing is an excellent way to lower monthly mortgage costs, shorten the life of the loan, or both. With interest rates at historic lows, many are looking into a refinance. How can you know if refinancing is right for you? It may make sense to refinance if you purchased your home with a small down payment and are paying PMI, if your mortgage has a higher interest rate than what you expect you could qualify for today, or if you have a significant amount of equity in your home.

If You Bought Your Home Using a Small Down Payment

Many first-time homebuyers use a small down payment or a loan program that allows them to borrow their down payment. If that’s you and you now expect to have significant equity, refinancing might be the right choice. You can take the equity in your home and use it as the down payment in your new, refinanced mortgage, eliminating the monthly PMI payment and saving you money on a month-to-month basis and in the long term.

Your Mortgage Has a High-Interest Rate

A brief conversation with a mortgage broker, or even a quick internet search, can give you a good idea of whether you are likely to qualify for a lower interest rate now than what you currently have. If this is the case, refinancing is a no-brainer. Having a higher interest rate means more money going out each month and paying more over the life of the loan, with nothing to show for it. As long as you plan to stay in your home long enough to justify the closing costs, refinancing will save you money.

You Have Significant Home Equity

If you have a significant amount of equity in your home based on home improvement projects since you purchased it, having lived in your home for many years, or a hot seller’s market in your area, refinancing will likely make sense for you. The equity built up in your home can be used to lower your monthly payment in a rate and term refinance or to provide you with extra cash in a cash-out refinance.

If you think refinancing is right for you, the next step is to reach out to me at any time as your mortgage lender. I will offer a free consultation and pre-approval, where you can find out what the terms of a new loan are likely to be. Remember, time is of the essence because it’s important to act and lock in your terms while interest rates remain low.

More Information for Homeowners

How To Know How Much Equity I Have In My Home

How Best to Take Advantage of Your Home Equity Gains

What Should A Homeowner Do When The Mortgage Forbearance Is Over

According to Market Watch, home equity has hit a record high. Equity in a home, the difference between how much the home is worth versus how much you owe on the home, has increased greatly over the last few years. Most Americans are actually sitting on quite a pile of equity in their homes. This means that a lot of folks are taking out a home equity loan or HELOC for home renovations and others are selling their property gaining quite a bit of money to put down on another home.

But what if you are in the middle? What if you don’t necessarily want to take money out but you’re not ready to sell? Is there an option for those that can take advantage of the equity without selling or refinancing?

There are a couple of options but they can be quite complicated.

Consider taking out a futures contract.

This is a type of contract designed to guard against a loss in your home’s value. Perhaps you want to sell in the future but you’re not quite ready now. This might be a good option but there are a lot of costs involved including opening a sizable account with a futures trader. If home prices continue to go up, you might lose money with a futures contract so this option may not be best for individual homeowners. This might work better for multifamily or or a commercial investment as well as a very large real estate investor who understands the intricacies of this type of contract.

One year put option.

This is another fairly complicated option for those that don’t want to sell but also don’t want to pull money out. This can allow homeowners to sell shares of homebuilder stocks at a fixed price. If home prices fall and push the price of homebuilder stocks down, the homeowner could buy the cheaper shares and sell them at a higher price fixed rate with this option. Again, highly complicated.

A better option.

A HELOC or home equity loan still is one of the best options to utilize the equity that you have. Rates are still extremely low for these types of home equity loans and you can use the equity to pay down credit card balances or other high-interest rate debt giving you an immediate return on the difference between the two rates. For instance, if you can get a HELOC less than 3% and you owe a 20% interest rate on a credit card, you can easily save at least 17% or more in interest rates by paying off those loans instead.

You can also use equity cash to make home improvements which will naturally add more value to the house in other ways. It’s technically using the cash that the home has provided to put back into the home increasing your equity even more. For instance, if you took out $40,000 in a HELOC and put $40,000 into the home, the value might go up by $50,000 or more giving you a free $10,000 or more in equity just by making that simple move.

Related: 5 Great Reasons to Refinance Your Home

However, if you want to sell but are just not quite ready, trust that your home values will generally increase. Even if you are not moving for the next 2 to 3 years, you’ll have paid down that much more principle on your mortgage which could give offset any loss in value.

If you’d like to run some numbers on a HELOC, home equity line of credit or a home equity loan or simply a refinance for shorter terms and pull out some money for whatever you want, give me a call. Let’s run some numbers and see what makes sense both now and in the long run for your financial security.

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