7 Good Reasons To Refinance
Does a
new home loan make sense?
There are at least seven reasons to refinance a mortgage. You probably can
think of the first one -- to get a lower mortgage rate.
The average interest rate on an outstanding mortgage at the
beginning of 2012 was 5.098 percent, according to the Bureau of Economic
Analysis. However, lenders today are offering rates well below that benchmark,
making a refinance a no-brainer for many.
But low rates are not the only motive nowadays, here are
some more good reasons to consider to refinance.
Refi
for a lower rate
The No. 1 reason to refi is to get a lower mortgage rate. Despite
sinking rates, a lot of people haven't refinanced.
Many homeowners would like to refinance but can't
because they have little or no equity due to falling home values, too many can't
refi for this reason.
Convert
an ARM
Stability-hungry borrowers are ditching adjustable-rate
mortgages and refinancing into fixed-rate loans.
Other borrowers swing from one hybrid ARM to another. Even
though the rates were about to adjust downward, they got new 5/1 ARMs to extend
low rates another five years.
Get a
mortgage on a paid-off house
This isn't, technically, a refi, but it's
close. Mortgage-free homeowners sometimes get mortgages to put cash in their
pockets.
They could also take out a mortgage on a paid-off
property to start a business or for other reasons.
Cash
out to consolidate debt
When house prices were rising by 10 percent or more a year,
millions of borrowers got cash-out refinances. They refinanced for more than
they owed, got cash, and spent or invested it.
The cash-out refi craze ended when the housing bust began.
But there are still a few cash-out refis.
Cash
out to buy other property
Refinancing to buy property can bring up unexpected tax and mortgage
underwriting issues. A lot depends upon how the refinanced house and the new
property will be used.
For example, which property will be the primary residence?
Will the other property be rented out? Those are issues for a financial
adviser or tax
professional to untangle.
Consolidate
two mortgages
Some homeowners want to combine their first mortgage with
the home equity line
of credit.
Why get rid of a loan with such a low rate? Because they're
worried if five years from now, what if that rate jumps up to 11, 12, or 13
percent!
Address
family matters
Divorces often lead to refi's as a means of removing the
absent former spouse from the note.
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