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5 Reasons Why You Should Refinance Your Mortgage
If you are a homeowner, then you know by now that mortgage interest rates are at all-time lows. The question is, how should you act on that, if at all?
Well, it may make sense to refinance your home loan; and here are five strategies that you could take advantage of.
Lower your payment with a lower rate. That might sound obvious, and maybe it is. But most people do this wrong. Sure, they save $200 or $300 or, say, $489 a month…and that savings just dissipates into Amazon or Starbucks or…well, any number of ways.
A better plan is to do just that: Plan. You could refinance, keep making the same payment you had been making, and save $40-$60,000 in interest over the next few years, and have your home paid off much sooner. In this example, based on a real refinance I just helped someone with, the homeowner was able to save $489 every month.
And by making the same payment, will save $97,00 in interest over the next 15 years and will have the home paid off in full in under 19 years.
Last week I helped set up a refinance for a homeowner, who is a good saver. He has $500K in his investment accounts. I showed him how he could take the $350 savings every month, transfer that to his investments, and assuming an 8% return, he would grow that to $1,750,000 over the next 15 years. That got him excited.
Debt consolidation is another really good option. If you have credit cards with large balances, a car payment or installment loans hanging out there, and just cannot seem to get rid of them, then maybe use that home equity to wipe them out.
Recently we helped a homeowner consolidate $60,000 in high-interest debt with a refinance. His cash flow improved by a little more than $1200 a month. Imagine getting a $15,000 raise per year!
One word of caution on this strategy. It really does make a change in habits to be successful. You have to commit to not running up balances on the credit cards again. Best, really, to cut them up and cancel them once the new home loan is in place and they are paid off. And, it is simple to set up a bi-monthly transfer of at least half of that savings into a different account.
You will enjoy seeing how quickly this new account builds up. It makes it more fun to save and invest than to spend.
Lower the term of the loan. Try a 15-year or a 10-year fixed rate. Your home will be paid off sooner, and you will really be surprised at how much interest you will save.
This is especially useful if you know yourself, and you will not add the extra savings to the payments if you start over with a new 30-year fixed-rate, and will need the payment to be fixed to pay the loan off early. I know I do this because if I am not obligated to a 15-year fixed payment, I will find “other” uses for the money every month.
Take cash out to buy that investment property you have been wanting. Let’s face it, many of us have a lot of equity in our homes right now. And some have the goal of paying that home off as quickly as possible. That’s great and I will never argue that objective.
But others are focused on creating more assets and diversifying the investments we have. If that is you, then consider taking cash out to serve as a down payment on the investment property – and start seeing cash flow accelerate.
Use some home equity to help pay for college for your son or daughter. That could give them a boost in their careers, without being burdened with student loans. Yes, you would be increasing your debt load, but what a gift to give.
All of these options have one common theme. They all leverage to help build wealth more quickly – the first four building your wealth, the final option giving a leg up to your child to be better off to begin to build their own wealth.
Want to use your home to help build wealth more quickly? Let’s get started: Click HERE to make a loan application.