When You Should Refinance Your Family Home

Wednesday, June 10, 2020, 6:00 AM | Leave Comment

A mortgage refinance can be very tempting, particularly when rates are low.

If your credit is good, you may be tempted to refinance your home for many reasons.

Before taking this step, consider the reasons listed below.

When You Should Refinance Your Family Home

  • To Lower Your Payment

    If you had a 30 year mortgage at more than 5% and have paid for five years or less, take a look at refinancing the remaining balance to a 15 year loan if you can qualify for a lower interest rate.

    This action

    • turns your 30 year mortgage into a 20 year mortgage

    • may lower your payment, depending on the interest rate

    • can wipe out your PMI (private mortgage insurance) payment

    Be ready to shop around for better mortgage rates. Also be aware that many smaller banks are hungry to get into the mortgage market and may be able to offer you some flex if your credit rating isn’t ideal.

  • To Pay Other Debts

    If you have a great deal of credit card debt, have equity in your house and are ready to consolidate your payments, you can consider a cash out refinance. If at all possible, refinance to a 15 year mortgage when taking this step. Once you have the cash in hand, immediately wipe out the credit card debt and give your credit rating a couple of months to rebound and settle in. If you need to consolidate even more debt or lower your payment load, a great credit rating can make it easier for lenders to work with you.

    For example, now that you know what your mortgage payment is, review any car payments you’re currently making. Consider refinancing your auto with a new five year loan to lower the payments. Lowering your payments can make it easier for you or your spouse to move to part time work, or you can put the extra money against the new mortgage to shorten the payments even further.

  • To Improve Your Home

    If you love your home and your location but you need to make changes, a home refinance to cover that debt is a great option. For example, you can build an addition to add bedrooms and living space if your family is growing. If you plan to age in place, you can update your home with main floor laundry and a main floor master suite.

    Having equity in your home gives you options, and a cash-out refinance to pay for a renovation gives you the chance to enjoy a new home without the hassles of selling. However, if you’re planning to sell within a year or less, you will lose money on the closing costs. Only refinance if you’re planning to stay put.

  • To Pay for a Child’s Education

    Middle class parents may find that they’re squeezed from both sides when looking at college expenses. The tuition bills might be more than they can manage, but they make too much to qualify for federal student aid. This can be even more costly if your child chooses to go to school out of state.

    Before your child borrows to pay for college, consider the following factors:

    • You can borrow to cover student loan bills

    • Your name must be on the loans to get the best break on closing costs

    • You should be absolutely certain that your child must attend that school.

    College is a marvelous experience and you want your child to get the best education possible. If your child wants to study aerospace engineering, then you may be limited as to the colleges they can attend for successful career preparation. Another degree may be cheaper to get closer to home and at a lower price tag.

    You are allowed some tax deductions for student loan interest; you also may qualify for a mortgage interest deduction. Talk to your accountant as your child’s high school career winds down to determine the best choice forward if you want to use your home equity to pay for your child’s education so you can capitalize on the best deduction.

The equity in your home can be put to good use. You can lower other debt, use it to reduce your payment amount, or improve your home. You can also save your child the burden of student loans. Use your equity to build a better future for yourself and your family.

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