Making Your Refinance Work Hard for You

Interest rates are at historic lows. If you’re a homeowner, you may be looking to refinance your mortgage to lock in a lower fixed rate for 15 or 30 years into the future. Circumstances and rates vary, but in general, if you can reduce your rate by 1 percent or more, it may be worth it.

But the lower rate is only the beginning. There are ways to make a refinance work harder for you. It just takes a little planning and consideration for your personal situation and your goals. Below are some hypothetical scenarios to show how homeowners can refinance their homes to create more stability or to open up opportunities.

• A 40-year-old homeowner could shorten the term of the loan and potentially pay it off by age 55. If they can afford a modest increase in their monthly payments, the current rate environment can help a homeowner reach that goal and save the interest they would have paid in the longer-term loan.
• A 30-year-old couple with a growing family plans to stay in their home. They have children in grade school now, but they want to increase the amount they’re able to save so they can afford cars and college as the kids get older. They may choose to refinance for a longer term at a lower rate to reduce their monthly payment and free up more cash to put into savings.
• A 50-year-old homeowner couple took out a home equity line to pay for college. Now with an empty nest, they want to pay it off. They may do what’s called a “cash out” refinance where they pay off the equity line that’s on an adjustable rate and roll it into a 15-year term fixed-rate mortgage.
• A homeowner with an elderly parent who needs more help could use a cash out option to build out attic space or add an apartment for the parent to move in. This not only serves the immediate purpose but may add value to the home in the long term.
• A homeowner previously considering a move might not feel comfortable house-hunting, and housing inventory is low in some markets. So they may refinance instead, using a cash out option to make improvements to their existing home. Some may opt for construction projects that make their backyard more enjoyable, especially as they’re spending more time at home.
• A homeowner with significant equity who is seeking to invest in property may choose the cash out option to buy another house, whether to fix it up and sell it or to rent it out for an ongoing return.

Refinancing is a lot more versatile than most people know. Guidance from a trusted mortgage advisor can help homeowners assess their personal situation, review current and potential earnings and financial goals and decide if a refinance makes sense for you and your family.

John Early is a mortgage advisor at Pinnacle Financial Partners in Charlotte, NC. He can be reached by phone at (980) 359-1144 or by email at john.early@pnfp.com. All loans are subject to credit approval. Ask for details.