refinance is used to pay off other debts with higher interest rates
or to finance a large purchase, like college tuition or a remodel.
I generally discourage this kind of refinance. Converting unsecured
credit card debt to secured debt against your house may add years
to your debt repayment and increase your risk. Not to mention, it
might not save you all that much in the long run.
Many homeowners begin to consider refinancing a few years into their
mortgage when their credit scores or property values have increased
and/or when their debt-to-income ratios and interest rates are lower.
As I write this, the 30-year fixed-rate mortgage is benchmarked
at 4.49% and the 15-year at 3.89%, which is lower than your current
6.25% interest rate. It sounds like a great time to weigh your options.
As a word of advice, aim to refinance for a shorter term than the
remainder on your current mortgage. In your case, 25 years or less.
If you take out another 30-year loan, it could end up costing you
more in the long run and drag out your repayment. A 15-year will
qualify you for an even lower rate, save you tens of thousands over
the life of the loan, and you'll pay it off even sooner. As a tradeoff
though, it may not reduce your payment much and could even increase
your current monthly payment.
Besides interest, refinancing can also save you money on insurance.
If the equity in your house is more than 20%, you can remove the
private mortgage insurance. When weighing your options, compare
your closing costs, interest rate, and term to calculate total costs
for the life of the loan and each option's breakeven point. If it's
18 months away, do you plan on remaining in the house that long?
Remember, payments are minimums - you can always make larger payments
to pay off the principal balance at an accelerated rate, with the
flexibility to drop your payments back down to the required amount
if needed. Markets, property values, and life itself is very unpredictable
so even though I don't know all of the details about your situation,
I would definitely recommend you speak with a mortgage lender as
soon as possible to see if taking advantage of lower rates would
benefit your family. Good luck!
© Taylor Kovar
April 20, 2018
More "Go Far With Kovar"
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