Interest rates today aren’t what they were a few years ago. If you’re fortunate enough to own a home, you might be more focused on counting your blessings than trying to save even more. While that’s a healthy attitude, there are some reasons you might consider refinancing this year. Should you reach out to your financial advisor? What are some clues? You need to ask the right questions to guide your decision. Here are five reasons to consider refinancing this year.
1. Has Your Credit Score Increased?
Perhaps you purchased your home when your credit was considerably lower than today. If you’ve worked hard to repair it, you should reap the rewards. Even a 1% reduction in interest rate can save you thousands of dollars over the life of your loan. There’s no limit on how many times you can refinance, and you don’t have to dip into your equity with a loan or HELOC. You can, however, potentially lower your monthly payment substantially, sometimes by $100 or more.
Inflation is still high — that little extra monthly boost could help compensate for rising grocery store costs. Consider lowering your payment and freeing up some cash.
2. If You’re Getting Married
When you and your significant other decide to make your relationship permanent, you might want to refinance to add them to the loan. Although it’s usually true that debt incurred before marriage remains the separate property of that person, the law makes some exceptions for the marital home, and different jurisdictions have various rules.
Furthermore, you might want to refinance before you say “I do” to afford the wedding of your dreams without paying outrageous credit card interest rates. The average wedding costs $30,000, with $10,000 alone going to the reception hall. Paying 20% interest or more on a credit card can add thousands to such a loan, but home equity loans have much lower rates. Financial pressure remains one of the leading causes of divorce. The savvier you are when financing your big day, the less burden you’ll face as a newlywed.
3. If Interest Rates Drop
There’s no telling what might happen with interest rates in the near future. While inflation remains high, rates are unlikely to drop much. However, many economists believe a downturn is coming, which could result in a drop. If you look at historical trends, you’ll see that mortgage rates tend to drop significantly after an economic downturn. The average rate since 1971 stands at 7.75%, which is still higher than many rates today.
Those who purchased their homes in 2000 paid considerably higher rates on average than lending institutions offer today. You might have gotten into the habit of putting your mortgage on autopay and forgetting about it — but continuing to do so is like treating the bank to a free monthly gift. They have enough money. Keep more in your pocket.
4. If You Want to Alter the Loan’s Duration
If there’s one constant in today’s world, it’s uncertainty. For example, it’s now rare to begin and end your career with one company — many people switch every one to five years. The pandemic illustrated how life could change seemingly overnight. How can you best protect yourself financially? Many people decide to pay off their mortgage early, securing the property as theirs as long as they continue to cover the requisite taxes. While not every loan has a prepayment penalty, this requirement can mean paying hundreds more for the privilege of paying off your debt.
However, you don’t have to keep paying your usual rates if you want to slough off your obligation early. The solution? Refinance to a 15-year or shorter mortgage with no prepayment penalty and wave goodbye to your largest monthly bill early.
5. If You’re Planning to Age in Place
More older adults today prefer to age in place, given the high cost of retirement homes and a desire to maintain their lifestyle. While there’s no reason to move if you’re otherwise in good health, the right accessibility repairs can make your golden years safer and improve your comfort.
The problem becomes how to pay for grab bar installation in your bathroom or a chairlift or dumbwaiter to make carrying the laundry to the basement less hazardous. Refinancing allows you to tap into your equity at lower rates than credit cards and unsecured lines of credit offer.
6. You Want to Go Green
The nifty thing about solar — other than being good for the planet — is that it’s kind to your wallet. The average home can save anywhere from $20,000 to $97,000 over the lifetime of their system. Panels pay for themselves, but first, you have to cover installation costs. Refinancing with a home equity line of credit gives you the cash you need for the initial overhead. You then repay the loan with what you save on utilities each month.
Reasons to Consider Refinancing This Year
With interest rates rising, you might not think this is a great time to refinance. However, everyone’s circumstances are different, and you might be in the ideal spot. Consider the above six reasons to consider refinancing this year. Then talk to your financial advisor about your options.