Refinance a good idea or deal? It depends on what you want out of it. There are innumerable reasons to do so.
- The most common reason to refinance is to save money on the monthly payment, irregardless of whether that makes sense in the long run.
- Another common related reason is debt consolidation, paying off something else at the same time. One common debt consolidation is paying off a second mortgage or HELOC and going back to one mortgage payment. Another more recent re-addition is the ability to payoff student loan debt.
- Change in terms, I have seen a lot of that over the years, quite a few down to 15 years, others back to up to 30 (to lower payments). Please do not underestimate why a widow with half the income now would want to save the family home; or someone experiencing a lot of work related problems would want to secure the lowest housing payment possible.
- Another common reason to refinance is to eliminate PMI, or MIP (mortgage insurance) with a conventional loan refinance whether through price appreciation of the home or through just paying down your first or through home improvements. Most FHA loans made recently have MIP for a minimum of 11 years! In that time, you could be well under 78%, but still stuck with mortgage insurance. It could make sense to get a conventional loan refinance instead to eliminate mortgage insurance.
- Nearly last, but not least, is home improvements. For years as a banker I thought a second mortgage was a good recommendation, but when I had my own improvements, I quickly got tired of two payments on one house. Do not underestimate the double risk of being late and two separate mortgages against your home! With a renovation first mortgage loan, you can get what you need done quickly and easily without adding another payment. Since first mortgages in recent history have been lower rates than seconds, this makes sense from the rate prospective and convenience. It also works for rental properties!
- Sadly, some hate their servicer. It may seem silly but after so many scandals and the balloon loans now coming due (from pre-2008 lack of regulations or small banks that were allowed to continue this practice), don’t be surprised to see more of it.
My question to you: what is your reason? I would love to hear your reason…
You may contact me directly at corey@lakestatemortgage.com