Are you looking to ditch FHA mortgage insurance premiums? Perhaps you’re looking to pay off your mortgage faster? Do you want to consolidate credit card debt or pay for home improvements? A home loan refinance could answer all of these questions for you.
Although interest rates aren’t as low as they were prior to the presidential election, a current rate in the mid-4% range is still pretty darn good. If you take a look at historical data kept by Freddie Mac, rates are still very low in comparison to other periods. It’s true that we may not see the 17% rates from 1982 anytime soon, but as recently as 10 years ago, rates were in the mid-6% range. You can definitely see a lot of savings by locking your low rate now.
Given this context, refinancing can still make a lot of sense for many of you in 2017, depending on your goals. We’ve come up with four great reasons below why you might consider.
Ditch Mortgage Insurance
If you applied for an FHA loan on or after June 3, 2013, in many cases, you’ll have to continue to pay mortgage insurance premiums for the life of the loan. Even if you made a down payment of 10% or more, you would have to continue making the payments for 11 years.
The good news is that you’re not necessarily stuck forever in your FHA loan with mortgage insurance payments. Once you reach 20% equity in your home, a refinance could be your ticket out. If your credit score and other qualification factors are good enough for a conventional loan, mortgage insurance doesn’t have to be a fact of life.
Mortgage insurance payments aren’t required on conventional loans if you have a loan-to-value (LTV) ratio of 80% or less. To calculate your LTV in a refinance, divide yourmortgage balance by the home’s value. If you find yourself in an FHA loan, this could be an excellent opportunity for you to make the jump and pay one less monthly charge.
Shorten Your Term
Depending on your situation, it may make sense to refinance into a slightly higher rate and shorten your term. By doing this, you may find that you actually pay less interest over time than if you were to stay in your 30-year loan.
Quicken Loans also offers the YOURgage, where clients pick a custom loan term anywhere between 8 and 30 years. If you knew you wanted to have your mortgage paid off by the time your child went to college, you might pick something like a 12-year term if your kid is in the first grade.
It’s true that you can accomplish a similar effect by paying down the principal on your current loan. The advantage of moving into a shorter term is it puts you on a schedule that ensures you make the extra payments that you want to. It’s a good strategy for staying on track.
According to Bankrate, the average interest rate on a variable rate credit card was 16.26% as of December 21, 2016. Even “low interest” cards averaged 12.52%. If you have a credit card balance in the thousands of dollars following the holidays, those interest charges can add up quite quickly.
This is where you can use your home equity to your advantage. If you want to consolidate your credit card debt, it makes a lot of sense to cash out some of the equity in your home. Interest rates like 4% or even 5% are much lower than the interest you would pay on your credit cards if you had to carry a big balance over time.
This is a great way to get yourself in better financial shape if you’re looking to cut down your debt charges.
Make More Possible
While it can be all too easy to think of our home as just the place where we entertain our families and sleep, your home is actually one of the biggest investments you can make. You can use the equity to your advantage for any number of things.
If your retirement fund needs a boost, a cash-out refinance can be a great way to make that happen. It’s the same thing if you want to send your kid to college or add an addition with a guest bed and bath. Maybe it’s not even something that ambitious. Home issues tend to crop up at the most inconvenient time. Your equity can give you the funds to buy that new furnace you suddenly need.
Sure, interest rates are up a touch, but up from near historically low levels is still pretty low. This makes refinancing still a very viable option for many and it could be that way for you. Check out Rocket Mortgage® by Quicken Loans® or give us a call at (888) 728-4702.
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