There may come a time in your life when it is a good idea to refinance. However, you need to determine if the circumstances are right and that you are refinancing for the right reasons. It is also important to find the right lender that will be a partner with your during this process. This is not a decision to be taken lightly. With loans gone wrong in the news and foreclosures at record highs, refinancing can be a way to provide you some financial relief. However, there is many reasons to refinance. You will need a professional to help you determine if refinancing may be right for you.
Here are some great reasons to refinance:
1. Lower Interest Rate
- The average interest rate on an outstanding mortgage at the beginning of 2010 was 5.979 percent, according to the Bureau of Economic Analysis. However, lenders today are offering rates well below that benchmark, making a refinance a no-brainer for many.
2. Convert an ARM
- A good reason to refinance can be when you have an adjustable rate mortgage (ARM) and you refinance to lock into a fixed-rate mortgage. This will protect you from an increase in future interest rates, which could make it harder for you to afford your mortgage.
3. Get a mortgage on a paid-off house
- This isn’t, technically, a refinance, but it’s close. Mortgage-free homeowners sometimes get mortgages to put cash in their pockets. They could also take out a mortgage on a paid-off property to start a business or for other reasons.
4. Cash out to consolidate debt
- Another reason to refinance is to get money out of your house, which is known as a cash-out refinance. This type of refinancing allows you to access the equity in your house to use that money for other purposes.
5. Cash out to buy other property
- The trend now is that people are taking money out to purchase other properties. Often, it’s to buy investment properties. Refinancing to buy property can bring up unexpected tax and mortgage underwriting issues. A lot depends upon how the refinanced house and the new property will be used.
6. Consolidate two mortgages
- Some homeowners want to combine their first mortgage with the home equity line of credit.
- Divorces often lead to refinancing as a means of removing the absent former spouse from the note.
8. Avoiding a Foreclosure
- If you are on the brink of foreclosure and are desperate to save your home, refinancing may be the answer for you. Whenever you are having trouble paying your mortgage, it is always a good idea to approach your lender and discuss the issue with them. They may be open to helping you through a refinancing or a loan modification.