For most of us, our mortgage payment is the biggest monthly bill we pay. The best part of that payment is that it builds equity that can be used to improve your financial situation. It’s what separates your mortgage payment from a car loan and credit card bills. So, when those monthly bills begin to push beyond your budget, there are ways to use your home’s equity to lower your monthly bill payments and get in a better place financially.
By refinancing your mortgage to consolidate debt you can save hundreds of dollars each month — and maybe thousands over the remainder of your mortgage. Refinancing can also help you rein in escalating credit card balances and other high interest rate loans. Here are the answers to questions you need to ask:
Q: When does refinancing make most the most sense?
A: Refinancing can be a great way to get the budget relief you’re looking for, and in some instances, lower your current mortgage rate. When you refinance to consolidate debt you can save on your monthly expenses by eliminating those high interest credit card and auto loan payments.
Q: With interest rates rising, is it too late to refinance?
A: No. While interest rates have gone up, they are still historically low compared to previous decades where rates reached double digits. Today’s rates still afford you the opportunity to refinance and improve your financial situation through debt consolidation. Even if debt consolidation isn’t something you need, depending on your current interest rate, if you didn’t get the chance to refinance over the last few years, you may still be able to obtain a lower mortgage payment.
Q: What conditions are right for a refinance?
A: Now is a great time to consider refinancing. Recent increases in the value of your home could provide you with many different refinance options. Maybe get rid of costly mortgage insurance or use the equity to consolidate higher interest debt. As always, a good credit score is important but not essential. And even if you have a second mortgage loan or home equity line of credit, both could be paid off as part of the refinance — possibly saving you more.
Q: Is there a situation when refinancing may not be a good idea?
A: There are situations when refinancing might not be a good idea. There is no way to know without talking to a mortgage lender about options available to you. Before you commit to anything, lenders are required by law to provide you with a loan estimate which will explain your new loan and its costs so you can decide if it’s right for you.
Q: I have an adjustable rate mortgage currently, which was a great help in affording my home in the first place. With rates on the rise is now the time to refinance?
A: For those with an adjustable rate mortgage or ARM, now is absolutely a good time to consider refinancing to a fixed interest rate mortgage. Depending when you purchased your home and the terms of your ARM, you may not see the effects of the interest rate hikes right away. But waiting to refinance could cost you once that initial term is up. Refinancing now may not lower your mortgage payment but it does fix the rate for the remainder of the loan. With a fixed rate mortgage you know you payments won’t change and can then budget accordingly.
Q: If I choose to refinance will I have to pay closing costs and other fees?
A: Not necessarily. There are no closing cost refinance options available. Those “no cost” options usually have a slightly higher interest rate. Paying closing costs upfront ensures you get the lowest rate available. In many instances the benefits of refinancing far outweigh the costs associated with it. You can pay the costs upfront or roll the costs into the refinance and avoid having to pay the costs upfront and still benefit from the lower rates.
So, next time you’re looking for ways to lower those monthly bills, take the time to talk with your lender about your mortgage loan payment. You may be surprised by the available options.