Refinancing a current mortgage should lower your payments, offer predictability (within your timeframe), help you increase equity in your property or all three. What should you consider in order to decide if refinancing can help you strengthen your financial situation?
- Can you refinance to a lower rate and payment? Your existing rate and payment might be higher than the current market rate due to (a) rates dropping after your current loan closed, (b) having a bad credit profile that may have had rate bumps and adjustments, and currently your credit may have improved, allowing the possibility of a better rate, (c) not having initially shopped for the most competitive rate, (d) having a first and second mortgage whose average rates are high or (e) having a loan with mortgage insurance that can be eliminated through higher appraised value and or increased equity.
- A balloon mortgage coming due. Long-term loans having minimal or no amortization of the outstanding principal, and a due date (payoff date) earlier than the term are called balloon loans (or interest-only loans). The loan principal is not self-amortizing; therefore, a lump-sum principal payment is due at a point in time specified in the mortgage note agreement, or the outstanding principal balance will amortize over 20 years at a substantially larger payment.
- A need for predictability—converting an adjustable rate to a fixed rate. Many people have taken adjustable-rate mortgages because (a) they are easier to qualify for, (b) the initial cash flow is better, (c) they had planned on a short-term use of the property or (d) they bet that rates would stay low forever and they would just churn into another adjustable. Generally if current fixed rates are the same or lower than an existing arm, and if you plan to hold the property on a long-term basis, refinancing to a fixed rate product for stability may serve you well. Conversely, you may have decided that you plan to stay in your current property for the short term, only two to three years, so you may be able to refinance from a fixed rate to a lower adjustable rate (rates are typically lower) and payment in order to lower your payments.
- Cashing out of your property for the greater good. You may refinance your mortgages to pull cash from the equity in your home for the following reasons:
Things that may add value: (a) home improvements, (b) investment opportunities, (c) purchase of a vacation home or other properties, (d) to buy, expand or start a business.
Thing that are living needs such as (a) tuition (b) year-end tax payments (c) celebrations (weddings, etc.).
- Your construction loan coming due. If you have been doing construction on a new home, your loan will typically modify into a fixed-rate loan. You may want to compare that rate to current market rates with other lenders right before your final rate is set.
- Eliminating monthly mortgage payments. For all those over 62 years of age: Reverse mortgages can eliminate your current monthly mortgage payment, consolidate your debt and create more positive cash flow. A reverse mortgage can also be used to purchase a new primary home or second home also while eliminating the monthly mortgage payment.
Take a moment to review your mortgage. You may wind up with a pleasant surprise.
By Carl Edward Guzman
Carl Guzman, NMLS# 65291, CPA, is the founder and president of Greenback Capital Mortgage Corp. He is a real estate mortgage banker & business financing expert with over 28 years’ experience. He currently has 173 five-star reviews on Zillow. Carl and his team will help you get the best mortgage financing for your situation and his advice will save you thousands! Email Carl at [email protected] or visit www.greenbackcapital.com.
